The personal allowance freeze, and what fiscal drag actually costs you
Photo by Kelly Sikkema · Unsplash
Nobody raised your tax rate. Nobody needed to. Freezing the personal allowance and the higher rate threshold while wages rise does the same job more quietly, and it has just been extended for three more years.
The UK Personal Allowance has been stuck at £12,570 since April 2021, and at the Autumn Budget on 26 November 2025 the government extended that freeze for a further three years, to April 2031. No rate went up. No band was announced as scrapped. But because the point at which tax starts, and the point at which it rises to 40% and then 45%, no longer moves in line with wages or prices, the tax take rises on its own every single year. That mechanism has a name — fiscal drag — and it is now one of the largest single sources of extra revenue in the public finances.
What is actually frozen
Three numbers govern most people's income tax, and all three have been held at the same level since the 2021/22 tax year:
| Threshold | Level | Applies from |
|---|---|---|
| Personal Allowance | £12,570 | £0 of tax below this |
| Basic rate (20%) band | £12,570 – £50,270 | 20% inside this band |
| Higher rate (40%) threshold | £50,270 | 40% above this |
| Additional rate (45%) threshold | £125,140 | 45% above this |
These are the current figures published on GOV.UK's Income Tax rates and Personal Allowances page. A fourth number matters just as much and is frozen too: the Personal Allowance shrinks by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140. That £100,000 entry point has never been uprated since it was introduced in 2010, which is its own, older freeze running quietly inside this one.
What fiscal drag means in practice
In a normal year, thresholds are adjusted so that a pay rise which only matches inflation does not change what share of your income the taxman takes. Freeze the thresholds instead, and that stops being true. Your cash pay rises, your real, inflation-adjusted pay may not have moved at all, and yet more of it now sits above £50,270 or £125,140 than it did before — taxed at a higher rate for no gain in what that money actually buys.
Consider someone earning £48,000 in 2021/22, comfortably under the higher rate threshold. If their pay has since risen by roughly a quarter in cash terms — in line with several years of wage growth — they are now earning around £60,000, a large slice of which falls above £50,270 and is taxed at 40% rather than 20%. Had the threshold itself risen by the same proportion, it would now sit close to £62,000, and the same salary would still be entirely inside the basic rate band. Nothing about their real standard of living pushed them into a higher tax band; the frozen threshold did.
A freeze that keeps getting extended
The freeze did not start as a decade-long policy. It has been extended three times by three different chancellors:
- March 2021 — Rishi Sunak freezes the Personal Allowance and higher rate threshold at their 2021/22 levels, originally due to run to April 2026.
- Autumn Statement 2022 — Jeremy Hunt extends the freeze by a further two years, to April 2028.
- Autumn Budget, 26 November 2025 — Rachel Reeves extends it again, by three more years, to April 2031.
Each extension was presented as leaving rates untouched, which is technically true and misses the point: a threshold that never moves while wages do is a tax rise dressed as a non-decision, repeated every April for a decade.
Who this pulls into a higher band
The Institute for Fiscal Studies projects that the number of higher-rate taxpayers will reach 10.1 million by 2029/30 — about 4.8 million more than if the thresholds had simply risen with inflation since the freeze began. At the top end, the IFS estimates that of the roughly 760,000 people paying the 45% additional rate by 2025/26, around 240,000 are there because of the freeze rather than because their real income actually grew into that band. Both figures describe the same effect at different points on the income scale: bands that used to catch a minority of earners now catch a much larger, and steadily growing, share of the working population.
The Office for Budget Responsibility has costed the freeze in cash terms too. The three-year extension announced in the 2025 Budget alone is forecast to raise an extra £3,100,000,000 in 2028/29, rising to £11,600,000,000 in 2030/31 — on top of what the freeze already in place was expected to raise.
What actually moves the number back
None of this is a reason to panic, and none of it is a recommendation — it is arithmetic that is worth knowing before you make a decision. Two levers reduce taxable income legitimately and are unaffected by where the thresholds sit: pension contributions and, for higher earners specifically, staying just under the £100,000 taper. A salary of £105,000, for instance, has £2,500 of Personal Allowance withdrawn purely by sitting above that line — a pension contribution that brings adjusted net income back under £100,000 restores it, on top of the usual pension tax relief. Employer salary sacrifice schemes and Gift Aid donations work the same way, reducing adjusted net income rather than fighting the frozen threshold directly. The income tax calculator applies the current UK bands to any income so you can see exactly which band your own salary falls into before and after a change.
Sources
- GOV.UK: Income Tax rates and Personal Allowances
- Institute for Fiscal Studies: How are frozen tax thresholds reshaping who pays personal taxes?
This is general information, not tax advice. Reliefs and allowances depend on your full personal circumstances. For a decision about your own tax position, speak to HMRC directly or a regulated tax adviser.