UK Personal Allowance Freeze Until 2031: How Fiscal Drag Affects Your Pay
Published: 2026-03-24
Since 2021, the UK government has frozen the Personal Allowance at £12,570 and the higher rate threshold at £50,270. Originally set to end in April 2026, this freeze has been extended — twice — and is now expected to continue until at least April 2028, with many analysts projecting a de facto freeze through 2030/31. This policy of "fiscal drag" quietly pushes millions of workers into higher tax brackets as wages rise with inflation, generating billions in additional tax revenue without any headline rate increases.
1. The Freeze Explained
Normally, income tax thresholds are uprated each year in line with inflation (measured by CPI). The freeze means these key thresholds remain unchanged regardless of inflation:
- Personal Allowance: Frozen at £12,570 (tax-free income)
- Basic Rate Band: £12,571 to £50,270 (20% tax)
- Higher Rate Threshold: Frozen at £50,270
- Additional Rate Threshold: Reduced to £125,140 (from £150,000 in April 2023)
With cumulative inflation of approximately 20% since 2021, a worker whose wages have kept pace with prices is now paying significantly more tax than they would if thresholds had been inflation-adjusted.
2. Current Income Tax Rates (2025/26)
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
3. National Insurance Contributions (2025/26)
In addition to income tax, employees pay National Insurance (NI) on their earnings. Following the rate cuts introduced in 2024, the current NI rates are:
| Type | Rate | Threshold |
|---|---|---|
| Employee NI (Class 1) | 8% | £12,570 – £50,270/year |
| Employee NI (above UEL) | 2% | Above £50,270/year |
| Employer NI | 15% | Above £5,000/year (from April 2025) |
The NI Primary Threshold is also aligned with the Personal Allowance at £12,570, so NI and income tax kick in at the same point — a simplification introduced in July 2022.
4. The Personal Allowance Taper
One of the most punishing features of the UK tax system is the PA taper. If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above that threshold. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140:
The 60% Tax Trap
Income above £100,000: 40% income tax
+ Loss of PA: For every £2 earned, £1 of PA is lost
= £1 of lost PA means 40% × £1 = 40p extra tax on top of 40p direct tax? No —
= The lost £1 of PA is taxed at 40%, adding 20p per £1 earned
Effective rate: 40% + 20% = 60% (plus 2% NI = 62%)
At £125,140, the entire £12,570 Personal Allowance is eliminated. Above that point, the marginal rate drops back to the standard 40% (or 45% above £125,140).
💰 Calculate your UK take-home pay
Based on the frozen tax bands above, see exactly how much income tax and National Insurance you pay on your salary.
UK Salary Calculator →5. What Is Fiscal Drag?
Fiscal drag (also called "bracket creep" or "stealth tax") occurs when frozen tax thresholds fail to keep pace with rising wages. Consider a worker earning £50,000 in 2021/22. If their wages grew by 5% per year with inflation:
| Tax Year | Salary | Income in Higher Rate | Extra Tax from Freeze |
|---|---|---|---|
| 2021/22 | £50,000 | £0 | £0 |
| 2022/23 | £52,500 | £2,230 | £446 |
| 2023/24 | £55,125 | £4,855 | £971 |
| 2024/25 | £57,881 | £7,611 | £1,522 |
| 2025/26 | £60,775 | £10,505 | £2,101 |
By 2025/26, this worker pays £2,101 more per year in income tax than they would if thresholds had been uprated with inflation. The Office for Budget Responsibility (OBR) estimates fiscal drag will pull an additional 4 million people into the higher rate band by 2027/28, with around 700,000 additional taxpayers overall by 2030/31.
6. Fiscal Drag Examples: The Hidden Cost Year by Year
Example 1: £35,000 salary with 4% annual wage growth
Consider someone earning £35,000 in 2021/22. With 4% annual pay rises (roughly matching recent inflation), they remain a basic rate taxpayer throughout — but the frozen thresholds mean an ever-growing share of their income is taxed:
| Tax Year | Salary | Taxable Income | Income Tax | Extra Tax vs Indexed |
|---|---|---|---|---|
| 2021/22 | £35,000 | £22,430 | £4,486 | £0 |
| 2022/23 | £36,400 | £23,830 | £4,766 | £101 |
| 2023/24 | £37,856 | £25,286 | £5,057 | £210 |
| 2024/25 | £39,370 | £26,800 | £5,360 | £326 |
| 2025/26 | £40,945 | £28,375 | £5,675 | £451 |
| 2026/27 | £42,583 | £30,013 | £6,003 | £585 |
| 2027/28 | £44,286 | £31,716 | £6,343 | £727 |
By 2027/28, this worker pays £727 more per year in income tax than if the Personal Allowance had risen with inflation. The cumulative extra tax over six years totals approximately£2,400.
Example 2: The £125,140 PA Taper Trap
For high earners, the frozen Personal Allowance creates an especially punishing marginal rate between £100,000 and £125,140. Here is the full cost of losing the PA:
Someone earning £125,140 or more
Personal Allowance lost: £12,570 (fully tapered away)
Extra tax from lost PA: £12,570 × 40% = £5,028
That means on income between £100,000 and £125,140:
• Direct tax: 40% • PA loss: additional 20% effective • NI: 2%
Effective marginal rate: 62% on every pound earned between £100,000 and £125,140
If thresholds had been indexed, the PA would be approximately £15,200 by now, and the taper would not fully eliminate the allowance until around £130,400. The freeze means high earners hit the 60% trap at a lower real income level each year.
7. Scotland vs England Tax Rates
Scotland sets its own income tax rates, which differ significantly from the rest of the UK. For 2025/26, Scottish taxpayers face six bands instead of three:
| Band | Scotland Rate | Scotland Threshold | England/Wales Rate |
|---|---|---|---|
| Starter | 19% | £12,571 – £14,876 | 20% |
| Basic | 20% | £14,877 – £26,561 | 20% |
| Intermediate | 21% | £26,562 – £43,662 | 20% |
| Higher | 42% | £43,663 – £75,000 | 40% |
| Advanced | 45% | £75,001 – £125,140 | 40% |
| Top | 48% | Over £125,140 | 45% |
For a £50,000 salary, a Scottish taxpayer pays approximately £800 more in income tax than an English taxpayer, due to the higher intermediate (21%) and higher (42%) rates. At £80,000, the difference grows to around £1,600 more in Scotland. However, Scottish rates provide a small advantage at very low incomes due to the 19% starter rate.
Note that National Insurance rates are the same across the entire UK — only income tax varies between Scotland and the rest.
8. Impact Example: £40,000 Salary
Let's calculate the 2025/26 tax burden for an employee earning £40,000:
Income Tax
Personal Allowance: £12,570 (tax-free)
Taxable income: £40,000 − £12,570 = £27,430
Basic Rate (20%): £27,430 × 20% = £5,486
Income Tax: £5,486
National Insurance
NI-free: £0 – £12,570
8% on £12,571 – £40,000: (£40,000 − £12,570) × 8% = £2,194.40
Employee NI: £2,194.40
Summary
Gross Salary: £40,000
Income Tax: −£5,486
Employee NI: −£2,194
Annual Take-Home: £32,320
Monthly Take-Home: £2,693
If the Personal Allowance had been uprated by inflation since 2021 (estimated ~£15,200 by now), this worker's tax-free income would be £2,630 higher, saving approximately £526 per year in income tax alone.
9. How to Mitigate Fiscal Drag
- Pension contributions: Salary sacrifice into a workplace pension reduces your taxable income, potentially keeping you below the higher rate threshold or the £100,000 PA taper. You get tax relief at your marginal rate.
- ISA investments: The annual ISA allowance (£20,000) shelters savings and investment returns from income tax and capital gains tax.
- Marriage Allowance: If one partner earns below £12,570 and the other is a basic rate taxpayer, transfer up to £1,260 of unused Personal Allowance for a £252 tax saving.
- Salary sacrifice: Trading salary for benefits like cycle-to-work schemes, childcare vouchers, or electric car leases reduces your taxable income.
Use our UK salary calculator to see exactly how much tax you pay and explore strategies to reduce your burden.
Calculate your UK take-home pay with current frozen thresholds:
UK Salary Calculator →Sources: HMRC, House of Commons Library "Income Tax: thresholds freeze", Office for Budget Responsibility (OBR) Economic and Fiscal Outlook, GOV.UK.
Frequently Asked Questions
How long is the UK Personal Allowance frozen for?
The UK Personal Allowance is frozen at £12,570 until at least April 2028, with the higher rate threshold also frozen at £50,270. The OBR projects these thresholds will remain effectively frozen through the forecast period. Originally set to end in April 2026, the freeze has been extended twice, and many analysts expect it could last through 2030/31.
What is fiscal drag and how does it affect UK taxpayers?
Fiscal drag occurs when tax thresholds are frozen while wages rise with inflation. As salaries increase but the Personal Allowance stays at £12,570, more of your income falls into taxable bands. The OBR estimates this will pull around 4 million additional people into the higher rate band by 2027/28, effectively acting as a stealth tax increase.
What happens to the Personal Allowance if I earn over £100,000?
If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above £100,000. This means the Personal Allowance is completely eliminated at £125,140, creating an effective marginal tax rate of 60% on income between £100,000 and £125,140 (62% including NI).