Tax news · June 2026
Income tax thresholds are frozen while wages rise, quietly pulling more people into higher tax. Here is what it means and how to reduce the effect.
Not every tax rise is announced as one. One of the biggest in recent years has come not from higher rates but from frozen thresholds, a quiet effect known as fiscal drag. As wages rise with inflation but the points at which tax kicks in stay still, more and more people are pulled into paying tax, and into paying it at higher rates, without any headline change at all.
The personal allowance, the amount you can earn before paying Income Tax, has been frozen at 12,570 pounds, and the higher rate threshold has been frozen at 50,270 pounds, with the freeze running for several years. Normally these figures would rise each year with inflation. Because they have not, every pay rise pushes a little more of your income into tax, and pushes some people over the line into the 40 per cent higher rate or into paying tax at all for the first time. The same freezing affects other thresholds across the system.
This affects almost everyone who earns, but it bites hardest on people whose pay is rising past one of the frozen lines. Someone who creeps over 50,270 pounds suddenly faces 40 per cent tax on the top slice of their income, loses some allowances, and may be drawn into things like the High Income Child Benefit Charge. Pensioners whose state pension is rising under the triple lock are also being pulled closer to paying tax on it. Over time, fiscal drag quietly raises the tax take from millions of people.
The good news is that there are legitimate ways to manage your taxable income. Pension contributions reduce the income that counts, and can bring you back under a threshold while building your retirement savings. Salary sacrifice for pensions, electric cars or other benefits does the same. Married couples may be able to use the Marriage Allowance or rebalance income between them. Gift aid donations extend your basic rate band. None of these are aggressive, and together they can keep you out of a higher band or preserve an allowance.
Our honest view is that fiscal drag is the tax rise nobody voted for and few people notice until it has happened. Because it is gradual, it is easy to ignore, but the cumulative effect over several years is large. The people who manage it best are those who watch the thresholds and act, usually through pensions, rather than letting their income drift over a line and paying more than they need to. A quick review around a pay rise or bonus is often all it takes.
We help you understand where you sit against the frozen thresholds and use pensions, allowances and sensible planning to keep your tax as low as the rules allow. Book a free call back and we will look at your income.
It is when tax thresholds are frozen while incomes rise, so more of your income is taxed and more people are pulled into higher tax bands over time, without any change in the headline rates.
Pension contributions and salary sacrifice reduce the income that counts towards the thresholds, and can bring you back under the higher rate line while building your savings. Marriage Allowance and gift aid can also help.
We will help you use pensions and allowances to manage your taxable income. Book a free call back and we will look at the numbers.