The UK Budget income tax freeze is staying put. Your personal allowance is stuck at £12,570, and the 40% rate still starts at £50,271, right through to April 2031. No rate went up on 28 October 2026. Your tax bill will still rise because pay rises now spill over frozen lines. Chancellor John Healey didn’t say a word about the freeze in the Commons. The Budget papers said it for him.
- Personal allowance stuck at £12,570; the higher-rate line stuck at £50,271 until April 2031.
- Rates untouched at 20%, 40% and 45%.
- National Insurance is also based on the same frozen thresholds, which will remain in place until 2030-31.
- The freeze is on course to bring in £58bn a year by 2030-31.
- By 2031, an extra 6.8 million people will pay income tax who otherwise wouldn’t.
- Pensioners on the full new state pension will receive a new pension tax allowance from April 2027.
What the UK Budget Income Tax Freeze Actually Does
Before 2021, thresholds nudged up with inflation each year, and nobody noticed. Then Rishi Sunak froze them from April 2022. The Conservatives stretched that to 2028. Rachel Reeves stretched it again to 2031 in last year’s budget. Healey has left it exactly where he found it.
Your wages rise with the cost of living. The thresholds don’t. So every year a bigger slice of your pay sits above the line, and some lands in a higher band. The Guardian calls this fiscal drag. Feels about right.
Call it a stealth tax. The money it raises now beats what the UK government spends on transport and isn’t far off defence.
The Thresholds You are Working With
England, Wales and Northern Ireland figures.
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Only the money above each line gets the higher rate. On £60,000, just £9,730 is taxed at 40%. Go past £100,000, and your allowance shrinks by £1 for every £2 over until it’s gone completely at £125,140.
What You Lose to the Freeze
Had the allowance kept up with CPI since 2021, your first £16,070 would be tax-free right now. It isn’t. Tax still kicks in at £12,570. The 40% line would be sitting at £64,470 rather than £50,271, going by the BBC’s sums.
The Office for Budget Responsibility reckons that by 2030-31 the allowance will be £4,900 lower than it should be and the higher-rate threshold £20,100 lower. It also expects the share of taxpayers paying higher or additional rate tax to climb from 15% in 2021-22 to 24% in 2030-31. Nearly one in four of us.
Want it in pounds? This is Money crunched. On £25,000, you’re down roughly £700 this tax year and £5,900 by 2030 if your pay keeps pace with inflation. On £50,000, right on the edge of the higher rate, it’s about £8,100 by 2030.
Jenny Holt, director at Standard Life, put the household side like this: ‘For workers, this means pay increases may not translate fully into higher take-home income, making it harder to balance day-to-day costs with longer-term saving.’
Who Feels It Most
Anyone who pays tax and gets a pay rise. It bites hardest just below a threshold, where even a modest rise pushes you over. By 2031 an extra 5.4 million of us will be higher-rate taxpayers purely because the lines never moved.
Middle earners get some cover: the 2024 National Insurance cut offsets part of the damage, without wiping it out.
Would Scrapping the Freeze Even Help?
The Institute for Fiscal Studies has done the sums. Unfreeze the allowance now and basic-rate taxpayers keep up to £198 a year, and higher-rate taxpayers £395. Uprating it properly with CPI costs the Treasury about £8.4bn. Doing it once in April 2027 and refreezing after is closer to £2.1bn.
Here’s the twist. Lifting the allowance to £15,000 has been floated by Labour, Reform and the Lib Dems, but the biggest winners would be upper-middle-income households, not the poorest. Polling by Opinium found 65% of households over £100,000 expected to be better off, against just 37% of those earning up to £20,000.
Dan Neidle of Tax Policy Associates argues that a National Insurance cut would have a greater impact, worth up to £265 a year on the median wage.
Pensioners Get a Workaround
The state pension has been creeping up on the allowance for years, and next April it overtakes it. The full new state pension hits £13,036, above £12,570 for the first time, which would have dragged pensioners into tax on their pension alone.
So Healey has bolted on a pension tax allowance. It’s worth 20% of the gap between the full new state pension and the personal allowance, shielding about £467 of income and saving up to £94. ICAEW points out it tapers by £1 for every £3 of income above that level and is gone by £13,319. It covers only 2027-28, 2028-29 and 2029-30.
One worry remains. Former pensions minister Baroness Ros Altmann has asked whether pensioners on the older pre-2016 system get the same break or whether we end up with a two-tier mess.
Graduates Pay Twice
On a Plan 2 student loan, you pay 9% on everything above £29,385, and that threshold is frozen too. Martin Lewis flagged it the moment the Chancellor sat down: “He has sat down… we will check now, but unless you hear, no news here, fiscal drag (and double fiscal drag for plan 2 students) stays”.
Money Saving Expert has campaigned to kill that freeze, with Lewis calling it “immoral and a breach of natural justice”. The maths, as The Independent explains, is brutally simple. A pay rise means a bigger slice over the line, which leads to a bigger 9% bill.
Scotland and Wales
The personal allowance is set for the whole UK, so Scottish taxpayers are caught too, even though Holyrood sets its own bands. The Scottish Budget is due on 3 December 2026. In Wales, the Senedd sets Welsh rates on top of reduced UK ones.
Savings and Property Income Get Worse
Grant Thornton highlighted that savers and landlords are the ones who will be most affected. From April 2027, tax on savings and property income will rise by another two percentage points, bringing the rates to 24%, 44% and 49%. Dividends and wages escape that one.
Does the Freeze Really End in 2031?
On paper, yes. Budget documents show thresholds rising with inflation again after April 2031, so you’d keep more of each pay rise. How much more depends on wage growth by then. Four more years of drag first.
FAQs
Q. Are income tax thresholds frozen until 2031?
A. Yes. The personal allowance and every income tax threshold stay put until April 2031. After that, they should rise with inflation again.
Q. What is the personal allowance for 2026/27?
A. £12,570, the same as it’s been since 2021. Earn less than that and you pay no income tax at all.
Q. What is fiscal drag in simple terms?
A. Your pay goes up, the tax thresholds don’t. More of your money ends up above the line, so you hand over a bigger share of it.
Q. How much extra tax will I pay because of the freeze?
A. Depends on what you earn. Someone on £25,000 is about £700 worse off this year; on £50,000 it’s roughly £8,100 more by 2030.
Q. Will pensioners pay tax on the state pension from 2027?
A. Not if it’s their only income. The new Pension Tax Allowance covers income up to the full new state pension of £13,036.
Q. Did Budget 2026 change income tax rates?
A. No. The 20%, 40% and 45% rates stayed put. The extra money comes from frozen thresholds and higher savings and property rates.
Sources & References:
- The Guardian – Every year a big slice of your pay is above the line, and some lands in a high band, which is called fiscal drag.
- Independent – A pay rise means a big slice over the line, which leads to a big 9% bill.
- MoneySavingExpert – Lewis described it as “immoral and a breach of natural justice”.
- BBC – The 40% line would be at £64,470 rather than £50,271.
