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

Last Updated: January 2026 | Tax Year: 2025-2026

The government hasn't raised income tax since 2021. Headlines would tell you that. What they don't mention: 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.

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What Are Frozen Thresholds?

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

Normally, these thresholds rise each year to keep pace with inflation. If prices go up 3%, your tax-free amount should go up roughly 3% too.

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

The Personal Allowance has been stuck at £12,570 for six years now—and it's scheduled to stay frozen until at least April 2028. That's seven years of your tax-free income becoming worth less and less in real 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.

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How Much Is It Costing You?

Let's look at some real numbers.

Example: £35,000 Salary

If you earn £35,000, your tax situation looks like this:

Same numbers, right? But here's the problem.

If thresholds had risen with inflation (about 20% cumulative since 2021):

• Personal Allowance would be around £15,084
• Your taxable income would be £19,916
• Your income tax would be approximately £3,983

That's roughly £500 more per year you're paying because thresholds were frozen. Over the remaining years of the freeze, that adds up to over £1,500 in extra tax you wouldn't have paid otherwise.

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—pretty standard, just keeping pace with inflation. 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's an extra £1,546 in tax just because you crossed a threshold that hasn't kept pace with wages.

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.

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Who's Being Hit Hardest?

The "New" Higher-Rate Taxpayers

The number of people paying the 40% rate has exploded:

• 2021: Around 4.2 million people paid higher rate tax
• 2026: Estimated 6.3 million paying higher rate tax

That's over 2 million extra people dragged into the 40% bracket—not because they got rich, but because thresholds didn't move.

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 has been squeezed from multiple angles:

• Wage growth of 15-20% over five years (sounds good!)
• But prices up by a similar amount (less good)
• And tax-free allowance unchanged (not good at all)

The result: your effective tax rate has crept up year on year, even though nothing officially "changed."

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 →

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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 2026
• Autumn 2022: Extended to 2028
• Political cost: Minimal (no headlines about "tax hikes")
• Revenue raised: Estimated £40+ billion by 2028

It's technically not a tax rise. The rates haven't changed. 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 coincided with the worst inflation spike in decades:

When prices rise 20% but your tax-free amount stays the same, you're effectively getting a pay cut—even if your headline salary went up.

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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 portion above £50,270).

If you contribute £5,000 to your pension:

• Your taxable income drops to £50,000
• You're now entirely in the basic rate band
• Tax saved: £1,000 (plus your pension pot grows)

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: Up to £312/year if you work from home
• 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

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The NI Offset: Why Your Take-Home Might Still Be Higher

Here's something that might confuse you: despite frozen thresholds, your take-home pay might actually be higher than it was in 2021.

Why? National Insurance was cut from 12% to 8% in 2024.

£40,000 Salary Comparison

So yes, you might be better off in absolute terms. But you're still worse off than you would be if thresholds had risen with inflation. The NI cut was a separate policy that partially offset the income tax drag—it doesn't mean fiscal drag isn't real.

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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):

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 →

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Will Thresholds Ever Rise Again?

Current Policy

Thresholds are frozen until April 2028. That's been confirmed.

After 2028?

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.

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Key Takeaways

Frozen thresholds = stealth tax rise. You're paying more even though headline rates haven't changed.

Six years and counting. The Personal Allowance has been £12,570 since 2021, and will stay there until at least 2028.

2+ million extra higher-rate taxpayers since 2021—not because they got rich, but because the threshold didn't move.

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.

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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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Related Reading

• The £100k Tax Trap: How to Avoid Paying 60% Tax
• Salary Sacrifice Explained: Save Thousands on Tax & Pensions
• Higher Rate Taxpayer Guide UK 2025
• Scottish vs English Tax Rates 2026 Comparison
• Pension Tax Relief: The Complete UK Guide

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Tax rates and thresholds accurate as of January 2026 for the 2025-26 tax year. This article provides general information only and is not financial advice. Individual circumstances vary—for advice specific to your situation, consult a qualified tax advisor or accountant.