Frozen Thresholds: The Stealth Tax You're Already Paying in 2026

Income tax thresholds are frozen, but millions of people are paying more tax anyway.

It's called fiscal drag, and unless you've been living under a rock, you've felt it. Your payslip might look the same as last year—or even slightly better—but the purchasing power of your take-home pay has quietly eroded.

Here's how it works, who's being hit hardest, and what you can actually do about it.

Quick Summary

• What frozen thresholds mean and why they raise effective tax over time.
• Who is most affected by fiscal drag in 2025-26 and beyond.
• Practical ways to mitigate the impact (pension, allowances, planning).

What Are Frozen Thresholds?

Let's start with the basics. The UK tax system has thresholds—income levels where different tax rates kick in:

Thresholds shown are for 2025‑26 and are frozen through 2030‑31.

Normally, these thresholds rise each year to keep pace with inflation. If prices go up, your tax-free amount should go up too.

But since April 2021, these thresholds haven't budged.

The Personal Allowance has been stuck at £12,570 since 2021–22, and legislation now keeps it (and the £37,700 basic rate limit / £50,270 higher‑rate threshold) frozen through the 2030–31 tax year. That’s a full decade of thresholds standing still in cash terms.

Meanwhile, wages have risen. If you've had a pay rise since 2021 (and most people have, even if it didn't feel like much), a bigger chunk of your income is now being taxed. And if your salary crossed the £50,270 threshold, you've jumped from paying 20% to 40% on everything above it.

This is called fiscal drag—and it's effectively a tax rise, just without the political inconvenience of announcing one.

How Much Is It Costing You?

Let's look at some real numbers.

Example: £35,000 Salary

If you earn £35,000 in 2025‑26, your income tax is £4,486.

Now imagine a £5,000 pay rise to £40,000 while thresholds stay frozen:

• Income tax rises to £5,486
• That’s £1,000 of the £5,000 raise going to income tax (before NI)

When thresholds don’t move, more of each pay rise falls into taxed bands—even if your real‑terms spending power hasn’t improved.

Example: £50,000 Salary (Near the Higher Rate Boundary)

This is where it really stings.

In 2021, if you earned £50,000, you were just below the higher rate threshold. All your income above the Personal Allowance was taxed at 20%.

Fast forward to 2026. Let's say you've had modest 3% annual raises—just enough to keep pace. Your salary is now around £58,000.

But the higher‑rate threshold hasn’t moved. It’s still £50,270.

• In 2021: £0 taxed at 40%
• In 2026: £7,730 taxed at 40% (the portion above £50,270)

That higher‑rate slice adds about £1,546 more tax versus if it were still taxed at 20% (the extra 20% on £7,730).

And here's the kicker: you probably don't feel £8,000 richer than you did in 2021. Inflation has eaten into those raises. But HMRC is treating you like you've had a windfall.

Who's Being Hit Hardest?

The "New" Higher-Rate Taxpayers

The OBR expects fiscal drag to push millions more people into higher bands by 2030‑31:

• 5.2 million more people paying income tax
• 4.8 million more paying higher‑rate tax
• 600,000 more paying additional rate

That’s a huge shift driven by frozen thresholds rather than sudden pay windfalls.

If you're a teacher, nurse, police officer, or mid-level professional who's had a few pay rises over the past five years, you might now be paying a rate originally designed for "high earners." Welcome to the club nobody asked to join.

Middle Earners (£30k-£60k)

This group gets squeezed because pay rises push more income into taxed bands while thresholds stay flat. The result is a creeping effective tax rate even when headline rates don’t change.

Those Near the £100k Cliff

If you earn between £100,000 and £125,140, you're in the most brutal tax zone in the UK system.

For every £2 you earn over £100,000, you lose £1 of your Personal Allowance. Combined with the 40% tax rate, this creates an effective 60% marginal rate—plus 2% National Insurance on top.

With frozen thresholds, more people are stumbling into this trap. A salary that was comfortably "safe" in 2021 might now trigger the taper.

Read our full guide to the £100k tax trap →

Why Is This Happening?

The Political Calculation

Freezing thresholds achieves something clever: it raises tax revenue without anyone having to announce a “tax rise.”

• March 2021 Budget: Thresholds frozen until April 2026
• Autumn Statement 2022: Extended to April 2028
• Autumn Budget 2025: Extended again to April 2031
• Revenue impact: The OBR estimates the extension adds £3.1bn in 2028‑29, rising to £11.6bn in 2030‑31, with total receipts from the freeze at £56bn in 2030‑31.

It isn’t framed as a rate rise. But if your £30,000 salary in 2021 bought you a certain lifestyle, and your £35,000 salary in 2026 buys you roughly the same lifestyle while paying more tax—well, you can draw your own conclusions.

Inflation Made It Worse

The freeze collided with a period of higher inflation and pay growth. When prices rise but your tax‑free amount stays fixed, the real value of the Personal Allowance shrinks and more of each pay rise gets taxed.

What Can You Do About It?

You can't change government policy. But you can structure your income to minimise the impact.

Strategy 1: Pension Contributions

This is the most powerful tool available to most people.

How it works:

• Pension contributions reduce your taxable income
• If you're near (or over) the higher rate threshold, contributions can pull you back into the 20% band
• You get tax relief at your marginal rate—40% if you're a higher rate taxpayer

Example: You earn £55,000. You’re paying 40% tax on £4,730 (the slice above £50,270).

If you contribute £4,730 to your pension:

• Your taxable income drops to £50,270
• You’re now entirely in the basic‑rate band
• Tax saved: ~£1,892 (40% of £4,730)

Learn about salary sacrifice →

Strategy 2: Salary Sacrifice Schemes

Beyond pensions, many employers offer salary sacrifice schemes for:

• Electric vehicles (potentially huge savings)
• Cycle to work
• Technology purchases
• Additional childcare

These reduce your gross salary, which reduces your tax—especially valuable if you're near threshold boundaries.

Strategy 3: Use Your Allowances

Make sure you're claiming everything you're entitled to:

• Marriage Allowance: Worth £252/year if one partner earns under £12,570 and the other is a basic‑rate taxpayer
• Working from home relief: You may be able to claim flat‑rate or actual costs
• Professional subscriptions: Memberships to professional bodies are often tax-deductible

Strategy 4: Time Your Income Strategically

If you have any control over when you receive income (bonuses, freelance payments, investment gains):

• Spreading income across tax years can keep you in lower bands
• Particularly relevant near the £50,270 and £100,000 thresholds
• A bonus in March vs April could make a significant difference

The NI Offset: Why Take-Home Can Still Rise

Employee National Insurance is 8% between the Primary Threshold and Upper Earnings Limit in 2025‑26, and 2% above that.

£40,000 Salary (2025‑26 rates)

• Income Tax: £5,486
• Employee NI: £2,194
• Take‑home pay: £32,320

NI rates affect your take‑home, but they don’t change the income tax thresholds. Fiscal drag still bites when thresholds stay frozen.

Scottish Taxpayers: A Double Challenge

If you're taxed in Scotland, you face additional complexity.

Scotland has six tax bands (compared to four in England):

Scottish bands shown are for 2025‑26.

The Personal Allowance is still frozen at £12,570—that’s a UK‑wide (reserved) matter, not devolved to Scotland.

So Scottish taxpayers get:

• The same frozen allowance as everyone else
• More tax bands to navigate
• Higher rates at the top (48% vs 45% in England)

Compare Scottish vs English tax rates →

Will Thresholds Ever Rise Again?

Current Policy

Thresholds are frozen until April 2031 (through the 2030–31 tax year). That’s now legislated.

After 2031?

Genuinely unclear. Various proposals have been floated:

• Index thresholds to inflation (the "normal" approach)
• Raise the Personal Allowance significantly (politically popular)
• Keep them frozen further (raises revenue quietly)

Political uncertainty makes prediction difficult. Different parties have different priorities, and economic conditions could change everything.

Realistic Expectation

Don't hold your breath. The fiscal advantages of frozen thresholds are significant for any government. Plan as if this is permanent—if thresholds do rise, treat it as a bonus.

Key Takeaways

Frozen thresholds = stealth tax rise. You can pay more tax without a headline rate rise.

A full decade of freezes. The Personal Allowance has been £12,570 since 2021–22 and is set to stay there through 2030–31.

Millions more in higher bands. The OBR expects 4.8 million more higher‑rate taxpayers by 2030‑31 because thresholds stay flat.

Pension contributions are your best defence. They reduce taxable income and can pull you back into lower bands.

Use our calculator to see exactly where you stand and model different scenarios.

Calculate Your Position

Use our free PAYE calculator to:

• See your exact tax breakdown for 2025-26
• Check how close you are to the higher rate threshold
• Model the impact of pension contributions
• Compare England vs Scotland calculations

No sign-up. No email. Your data stays in your browser.

Calculate Now →

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Frequently Asked Questions

Q: What is fiscal drag?
A: It is when frozen thresholds push more income into higher tax bands as salaries rise.

Q: Who is most affected?
A: Middle to higher earners and anyone receiving pay rises above inflation.

Q: How can I reduce the impact?
A: Pension contributions, salary sacrifice, and allowance planning can reduce taxable income.