What's actually frozen
The Personal Allowance and Income Tax bands are frozen until 5 April 2028:
Frozen at 2021/22 levels: • Personal Allowance: £12,570 • Higher Rate threshold: £50,270 (40% kicks in above) • Additional Rate threshold: £125,140 (45%, was lowered from £150K in 2023) • Personal Allowance taper start: £100,000 (loss of £1 PA per £2 over) • Personal Savings Allowance: £1,000 basic-rate / £500 higher-rate / £0 additional-rate • Dividend Allowance: £500 (cut from £1,000 in 2024) • ISA Allowance: £20,000
What's NOT frozen but indexed/adjusted: • State Pension: indexed via Triple Lock (separate inflation-beating mechanism) • Universal Credit (most elements): indexed to CPI • National Insurance bands: separate freeze schedule • Capital Gains Tax annual exempt amount: cut from £12,300 → £3,000 over 2022-2024
Why "fiscal drag" is the technical term: as wages rise with inflation but tax bands stay nominal, more of your income falls into taxable territory or higher brackets. It "drags" you into higher tax without any explicit tax rate change. The Treasury raises revenue silently.
Total raised by the freeze through 2028 (OBR estimate): £40+ billion - making it one of the largest tax-raising measures in modern UK history without any rate increase.
Bracket creep: where it bites hardest
Worker A: started at £25,000 in April 2021: • 2021/22 pay: £25,000 → tax £2,486 • Annual pay rises 4%: pay £30,415 → tax £3,569 • If bands had been indexed (4%/yr): PA would be £15,300 → tax £3,023 • Extra tax due to freeze: £546/year by 2026 • Across full 7-year freeze: ~£2,800 lost
Worker B: started at £45,000 in April 2021 (just under higher rate) • 2021/22 pay: £45,000 → tax £6,486 • Annual pay rises 4%: pay £54,749 → tax £9,381 (now in higher rate) • If bands had been indexed: 2026 higher-rate threshold £61,150 → tax £8,436 • Extra tax due to freeze: £945/year by 2026 • Across full 7-year freeze: ~£5,200 lost
Worker C: started at £70,000 in April 2021: • 2021/22 pay: £70,000 → tax £15,432 • Annual pay rises 4%: 2026/27 pay £85,165 → tax £21,498 • If bands had been indexed: 2026 higher-rate threshold £61,150 → tax £20,547 • Extra tax due to freeze: £951/year by 2026 • Across full 7-year freeze: ~£5,400 lost
The £100K cliff is brutal: • Personal Allowance tapers from £100K (loses £1 PA per £2 income) • Fully gone by £125,140 • Effective marginal rate in £100K-£125K range: 62% (40% + 20% from lost PA + 2% NI) • Bands frozen means more people hit this trap. Bonuses and salary increases into this range are almost entirely confiscated.
| Threshold | Frozen amount | Would have been (CPI-indexed) |
|---|---|---|
| Personal Allowance | £12,570 | ~£15,300 () |
| Higher Rate threshold | £50,270 | ~£61,150 |
| Additional Rate threshold | £125,140 | ~£152,300 |
| PA taper start | £100,000 | ~£121,700 |
| 2021 starting salary | 2026 salary | Extra tax 2026 alone | 7-year cumulative cost |
|---|---|---|---|
| £25,000 | £30,415 | £546 | £2,800 |
| £35,000 | £42,581 | £725 | £4,200 |
| £45,000 (near HR threshold) | £54,749 | £945 | £5,200 |
| £55,000 | £66,917 | £1,180 | £6,800 |
| £70,000 | £85,165 | £951 | £5,400 |
| £90,000 | £109,492 | £1,260 | £7,200 |
| Category | Additional people dragged in |
|---|---|
| Brought into income tax (above PA) | 3.2 million |
| Pushed into Higher Rate (40%) | 2.7 million |
| Pushed into Additional Rate (45%) | 500,000 |
Who's being dragged into the tax system
OBR projections for fiscal drag impact:
3.2 million more people brought into income tax by 2027/28 vs no freeze • Mostly low-income earners and part-time workers • State pensioners hit this when their pension exceeds £12,570 (around 2028) • Casual workers (gig economy) crossing threshold
2.7 million more people in the Higher Rate band by 2027/28 • Median teacher salary now at higher rate threshold (was 10 years ago: £20K below threshold) • Senior nurses, police inspectors, mid-level civil servants • Mid-career consultants and engineers • "Higher rate" was originally meant to capture the top 10% of earners. By 2028 it will be ~17% of taxpayers.
500,000 more in the Additional Rate (45%) band • Threshold was £150K from 2010-2022; lowered to £125,140 from April 2023 • Combined with bracket freeze: rapidly expanding cohort • Affects senior managers, IT contractors, mid-career doctors, partners in professional services
Generational fairness debate: fiscal drag falls hardest on workers because their pay rises (and gets dragged into higher rates). Pensioners are partially protected by Triple Lock's above-inflation pension increases. This shifts the tax burden from older to younger taxpayers.
Strategies to mitigate the impact
1. Maximize pension contributions • Pension contributions get tax relief at your marginal rate • Higher rate taxpayer contributing £1,000: only costs you £600 net • Salary sacrifice into pension: also saves NI (8% or 2%) • 2026/27 annual allowance: £60,000 (or your earnings, whichever lower) • Carry forward unused allowance from previous 3 years • Real benefit: getting yourself OUT of higher rate band entirely if possible
2. Marriage Allowance • If one spouse earns below £12,570 PA and the other is basic-rate (not higher), transfer £1,260 of PA • Saves up to £252/year • Must be claimed (not automatic): gov.uk/marriage-allowance • Can backdate 4 years
3. ISA contributions (£20,000/yr) • All growth and withdrawals are tax-free • Doesn't reduce your income tax directly but reduces future tax on investment returns • Couple can put £40K/yr into ISAs (separate allowances)
4. Salary sacrifice for childcare, cycle-to-work, EV • Reduces gross salary for tax + NI • Electric vehicles via salary sacrifice: massive tax saving (BIK rates 2-3% currently) • Childcare vouchers (legacy scheme): still available to existing claimants • Tax-Free Childcare (new scheme): up to £2,000/yr per child via government top-up
5. Gift Aid charitable donations • Donation grossed up by 25%; higher rate taxpayers reclaim extra 20% via self-assessment • Effectively the charity gets your basic rate; you reclaim higher rate • Most efficient at the £100K-£125K range to claw back personal allowance
6. Capital structure for self-employed • Trading via limited company: corporation tax 25% vs income tax 40%+ • Take income as dividends (lower rates) + small salary up to NI threshold • Set up family member as shareholder (with caveat on settlements legislation) • 2026 dividend tax rates: 8.75% basic / 33.75% higher / 39.35% additional
7. Pension drawdown timing (retirees) • Stay below £12,570 if your only income is taxable • Use 25% tax-free pension lump sums strategically • Spread pension withdrawals across multiple tax years
When will the freeze end and what comes next
Official freeze end date: 5 April 2028 - confirmed in both the 2022 Autumn Statement (under Sunak) and the 2024 Autumn Budget (under Reeves).
What happens 6 April 2028: bands will be indexed to CPI going forward (the default rule under the Income Tax Act). The 6 years of accumulated freeze are NOT clawed back - it's a permanent base reset.
Projected April 2028 bands (with default CPI indexation from 2028): • Personal Allowance: £12,570 (unchanged at first) • Higher Rate threshold: £50,270 (unchanged at first)
Projected April 2029 (one year of indexation): • Personal Allowance: ~£12,950 (assuming 3% CPI) • Higher Rate threshold: ~£51,778
Political risk: will the freeze be EXTENDED beyond 2028? • OBR baseline assumes freeze ends on schedule • Labour's 2024 manifesto did NOT commit to ending the freeze • 2027 Autumn Budget will be the decision point - if revenue is needed, extension is plausible • OBR estimates extending the freeze 2 more years (to 2030) would raise an extra £18B
2028 inflation catch-up debate: • Pressure to "make up" the lost 7 years of indexation • Politically attractive but expensive (£40B+ over 5 years) • Most likely outcome: gradual catch-up over Parliament 2029-2034
What to plan around: • Assume bands stay frozen through 2028 (worst case for planning) • Re-evaluate strategy each Spring Statement and Autumn Budget • Pension contributions are the single biggest mitigation - use them aggressively if you're near or in the higher rate band
Run the math for your situation
Use our 🇬🇧 United Kingdom calculator to plug in your own numbers.