Frozen until 2031
Income tax thresholds are frozen until 5 April 2031. The freeze was originally due to end in 2028 and was extended by a further three years at the last Budget.
The personal allowance stays at £12,570 and the higher rate threshold at £50,270. Those two are what the freeze legislation actually covers, along with the equivalent National Insurance thresholds. The additional rate threshold of £125,140 is not frozen by that measure: it is a derived figure, being £100,000 plus twice the personal allowance, so it sits still because the allowance does. The practical effect is the same, but it is worth knowing the difference.
Why a freeze is a tax rise
This is called fiscal drag, and it is the most effective tax rise ever invented because nobody can point to the moment it happened. No rate went up. No politician announced a rise. Your allowance simply stands still while your pay does not.
If you get a 4% pay rise and the thresholds do not move, more of your income sits in a taxed band than last year. If that pay rise merely matched inflation, you are no better off in real terms and yet you are paying more tax on it.
Over ten years the effect is severe. The personal allowance would be well over £16,000 by 2031 had it simply tracked inflation from 2021. The higher rate threshold would be comfortably past £65,000. Instead, people on ordinary salaries are being pulled into the 40% band for the first time.
The 60% trap, which is not a rate anyone will admit to
Here is the bit that catches high earners and is not in any table of tax rates.
Once your income passes £100,000, your personal allowance is withdrawn at £1 for every £2 of income above it. It is gone entirely at £125,140.
So on the slice between £100,000 and £125,140 you pay 40% on the income itself, and you also lose 50p of allowance for every extra pound, which is taxed at 40% too. The effective marginal rate on that band is 60%. Someone earning £125,000 faces a higher marginal rate than someone earning £500,000.
And because £100,000 has been frozen since 2010, a threshold designed for the genuinely wealthy now catches a great many ordinary professionals.
What you can actually do
Pension contributions are the main lever. A personal contribution extends your basic rate band and reduces the income figure used for the allowance taper. Someone on £110,000 contributing £10,000 to a pension is effectively getting 60% relief on that contribution, because they recover the allowance as well as the tax.
Salary sacrifice does the same job more efficiently, because it also reduces National Insurance. Note that from April 2029 sacrificed pension contributions above £2,000 a year are due to attract National Insurance, so this is worth revisiting nearer the time.
Charitable giving through Gift Aid works the same way on the taper.
If you are a director, this is the argument for thinking about timing and the split between salary, dividends and pension rather than defaulting to the same pattern every year.
Common questions
Does the freeze apply in Scotland?
The personal allowance is UK wide and frozen. Scottish income tax rates and bands are set by the Scottish Parliament and differ, so the higher rate point is not the same.
Figures are for 2026/27 and reflect current legislation. If you are near £100,000 or approaching the higher rate band, there is usually something worth doing before the year end. Get in touch.