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Join Which? MoneyIncome tax thresholds to remain frozen until 2031
UK income tax thresholds will have remained frozen for a decade in what many call a 'stealth tax'
With a background in financial journalism across national titles, Ruby loves helping people take control of their money and specialises in pensions, tax, banking and benefits.
Income tax thresholds will remain frozen until 2031, leaving the tax-free personal allowance locked at £12,570 and the higher-rate threshold at £50,270.
However, to cushion low-income retirees, the government is introducing a new Pension Tax Allowance (PTA) to offset the impact of the rising full new state pension.
Chancellor John Healey did not mention income tax thresholds at all during his Budget speech to Parliament, keeping the tax band freezes under the radar.
While holding headline rates steady avoids the political fallout of an outright tax hike, the prolonged freeze remains one of the largest stealth revenue-raisers in modern Treasury history.
Here is what keeping income tax thresholds on ice means for workers and household budgets.
- Find out more: Autumn Budget 2026 key points
Why do tax thresholds keep being frozen?
Income tax thresholds were initially frozen in 2021-22 by former Conservative Chancellor Rishi Sunak, with the freezes continuing to be extended by his successors.
Before this, tax thresholds typically rose each new tax year in line with Consumer Price Index (CPI) inflation.
In the first Labour Budget in 2024, former Chancellor Rachel Reeves announced that the thresholds would be unfrozen in 2028. However, inflation and spending constraints saw the unfreezing deadline stretched to April 2031.
The decision to keep bands frozen is driven by the state of public finances. Fiscal drag acts as an automatic revenue engine, without having to raise taxes. This allows the government to stick to its manifesto promise of not hiking income tax, National Insurance, or VAT rates – a promise that the current Chancellor John Healey emphasised several times in his speech.
Recent estimates by the Office for Budget Responsibility (OBR), suggest frozen tax thresholds could bring in more than £55billion a year extra by 2030.
Emily Holzhausen CBE, Director of Policy and Public Affairs at Carers UK said:
Commenting on the continued freeze, Jenny Holt, Customer Savings & Investments Director at Standard Life, said: 'The decision to leave the personal allowance unchanged is not a major surprise, given the pressure on the public finances, but it will still be disappointing for households already feeling the effect of frozen tax thresholds.
'As wages and pensions rise while the allowance remains fixed, more people are gradually pulled into paying income tax, or into paying more tax than they did previously. 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.'
- Find out more: Income tax calculator
How could tax threshold freezes affect you?
Frozen tax thresholds have the potential to affect individuals across all income levels. According to forecasts from the Office for Budget Responsibility (OBR) and analysis by the House of Commons Library, the extended freeze on UK income tax thresholds through April 2031 will drag 5.2m more people into paying income tax by 2030-31.
Alongside this, it will create 4.8m more higher-rate taxpayers, putting roughly 24% of all UK taxpayers into upper tax bands – up from 15% in 2021-22.
Here is an example of how the frozen allowance could impact different groups:
- Part-time and minimum-wage workers: When the minimum wage rises from £12.71 to £13.21 an hour in April 2027, working just 19 hours a week will push total earnings over the £12,570 tax-free limit. Because anything earned over that limit is liable for tax and National Insurance, £134 will be taken from the £494 annual pay rise, leaving the worker with only a £360 net increase.
- Average and middle earners: A worker on £50,000 receiving an average 3.7% pay rise (£1,850) – in line with ONS wage growth figures – will be pushed directly into the 40% higher tax bracket. Because earnings above the threshold face steeper deductions, tax and National Insurance will swallow £739.20 of the pay rise, shrinking the take-home gain to just £1,110.80.
Calculations are based solely on standard England and Wales statutory deductions, a 1257L tax code, 20%/40% income tax, and 8%/2% Class 1 National Insurance, excluding workplace pension contributions, student loans, or salary sacrifice schemes.
- Find out more: Tax-free income and allowances
What would income tax thresholds be if not frozen?
The tax bands have been frozen for five years. Had they risen by inflation, they would look a lot different today. According to previous analysis from Interactive Investor, if adjusted for inflation, these bands would now sit approximately around these levels in the 2026-27 tax year:
- Personal allowance – £16,039
- Higher rate (40%) – £64,145
- Additional rate (45%) – £238,764
Find out more: UK income tax rates 2026-27 and 2025-26
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Find out more7 ways to cut your tax bill
While avoiding tax entirely isn't possible, there are steps you can take to bring down your tax bill, even if only by a small amount:
- Increase pension contributions – Contributing to your pension through salary sacrifice lowers your taxable income before income tax and national insurance are deducted, allowing you to invest up to £60,000 a year tax-free while potentially dropping you into a lower tax band.
- Shelter savings in an Isa – Putting up to £20,000 a year into a cash or stocks & shares Isa keeps all interest and investment growth tax-free, preventing your returns from exceeding your personal savings allowance or pushing you into a higher tax bracket.
- Use your partner's Isa allowance – If you are married or in a civil partnership, both partners are entitled to their own individual £20,000 annual ISA allowance. By splitting household savings across both allowances, you can shelter up to £40,000 per tax year free of income tax and capital gains tax.
- Hold cash in Premium Bonds – You can put up to £50,000 into Premium Bonds to prevent your money from generating taxable savings interest that could exceed your personal savings allowance. Instead of paying interest, the bonds enter your funds into monthly prize draws with tax-free payouts of up to £1m.
- Claim tax relief on work-related expenses – You can directly cut your tax bill by writing off the out-of-pocket costs required to do your job such as tools or business travel. This deduction directly reduces your taxable employment income, lowering your overall tax bill.
- Claim the Uniform Maintenance Allowance – This lets workers who clean, repair, or replace workwear claim a standard £60 annual deduction – saving basic-rate taxpayers £12 and higher-rate taxpayers £24 (with larger amounts for roles like nurses and police officers) – which HMRC typically applies automatically each year once approved.
- Utilise Marriage Allowance – Marriage Allowance allows a spouse or civil partner earning under £12,570 to transfer £1,260 of their personal allowance to their basic-rate partner, saving up to £252 a year in tax with the option to backdate claims by up to four tax years.
Find out more: Tax reliefs – how to reduce your tax bill
Further tax announcements in the budget
Several other tax announcements were made in the Autumn 2026 Budget speech. Some of the most notable ones include:
Trading allowance tripled
The Chancellor has confirmed that the trading allowance will triple from £1,000 to £3,000, taking effect on 6 April 2027.
Under current rules, individuals can earn up to £1,000 tax-free each year from side hustles or casual trading alongside their regular job.
Anyone exceeding that threshold typically has to register as self-employed and submit a Self Assessment tax return to HMRC. From April 2027, workers will be able to earn up to £3,000 in additional trading income before facing tax reporting requirements.
New powers for HMRC
HMRC has been given new powers to automatically deduct instalment payments from the bank accounts of people who repeatedly ignore demands to pay their tax debts. The new powers will be effective from July 2029.
Currently, the tax authority can only deduct funds directly for debts of more than £1,000, provided at least £5,000 remains in the account so the deduction does not cause hardship to the taxpayer or business.
Under the new rules, this threshold would drop to as little as a few pounds, allowing HMRC to recover debts of almost any size alongside associated fines and interest. The full Budget also revealed that HMRC will also receive more funding to recruit an additional 670 compliance officers by 2029-30.
New personal allowance for state pensioners
With the new state pension set to rise above the £12,570 tax-free personal allowance, the government is introducing a temporary Pension Tax Allowance between April 2027 and April 2030.
First announced in Budget 2025, the measure ensures retirees whose only income is the full state pension will not have to pay small tax bills. For those with additional income, the allowance will reduce by £1 for every £3 earned above the state pension threshold.
The relief covers the 20% basic-rate tax on the difference between the full state pension and the personal allowance, before tapering off at a rate of £1 for every £3 of income earned above that threshold.
- Find out more: How much will the state pension pay next year?
