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Find out moreOne million more people set to pay income tax – 3 ways to reduce your bill
The number of taxpayers is expected to reach almost 41 million as frozen thresholds continue to pull more workers into paying income 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.
One million more people are expected to pay income tax or move into a higher tax band this year due to the frozen tax thresholds, according to new analysis.
The Taxpayers' Alliance says the freeze will also bring around 500,000 lower-paid workers into paying income tax for the first time.
First introduced in 2021 and extended in the 2025 Budget until 2030-31, freezing the personal tax allowance and higher-rate threshold creates ‘fiscal drag'. This happens when tax thresholds stay the same while wages rise, pushing more of your income into tax or higher tax bands.
Here Which? explains who is expected to pay more tax and show you three simple ways to cut your tax bill.
Who pays more tax?
The Taxpayers' Alliance, a campaign group that advocates for lower taxes, analysed HMRC and Office for Budget Responsibility (OBR) data to produce these estimates.
The analysis estimates there will be 500,000 more basic-rate taxpayers, 410,000 more higher-rate taxpayers and 70,000 more additional-rate taxpayers this year. This would bring the total number to almost 41 million, including 10.2 million over-65s — up 630,000 from last year.
The analysis suggests higher-rate taxpayers remain concentrated in London and the South East, which is home to 48% of additional-rate and 35% of higher-rate taxpayers. London has the highest proportion of highest rate taxpayers (25.9%), compared with the North East (14.4%).
Outside the South, Scotland accounts for 203,000 top-tier taxpayers, driven by its lower 45% threshold of £75,001.
HMRC receipts for 2026-27 are projected at £347bn — up £43bn since Labour took office.
The Taxpayers' Alliance estimates the average taxpayer now pays £640 more than in 2024-25, and £1,040 more than in 2023-24.
- Find out more: income tax calculator
What are the current income tax thresholds?
This is what 2026-27 income tax bands look like for England, Wales and Northern Ireland. Scotland has different income tax rates.
- Personal allowance - Up to £12,570
- Basic rate (20%) - £12,571 to £50,270
- Higher rate (40%) - £50,271 to £125,140*
- Additional rate (45%) - Over £125,140
*Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 they earn over the threshold, meaning anyone earning more than £125,140 loses their personal allowance entirely.
According to 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
Could changes be made to income tax?
In his first week in office, Andy Burnham hinted at revising the personal tax allowance after constituents raised it as a key concern during his Makerfield by-election campaign.
While the Prime Minister confirmed it would be reviewed in the next Budget, he made no firm commitment to change it. Burnham has also committed to Labour’s manifesto pledge not to raise income tax rates.
The Institute for Fiscal Studies (IFS) estimates unfreezing the threshold could potentially cost between £8.5bn and £9bn annually.
- Find out more: how to calculate your tax bill
3 ways to cut your tax bill
You can cut your tax bill across all income levels — not just as a high earner — even if it's only by a little:
1. Increase pension contributions
Increasing your pension contributions can directly lower your tax bill – whether through your workplace scheme or independent payments.
If your employer offers salary sacrifice, pension contributions are made before income tax and National Insurance are calculated, reducing the amount you pay.
For example, if you earn £55,000 and pay £5,000 into your pension via salary sacrifice, your taxable income drops to £50,000, bringing you back into the basic-rate tax bracket.
Most people can contribute up to £60,000 or 100% of their earnings (whichever is lower) each tax year while claiming tax relief, and you can carry forward unused allowances from the previous three years.
As well as lowering your tax bill right now, every pound saved goes towards your future retirement. You can even continue paying into a pension if you’ve already retired, provided you are under 75.
- Find out more: pension tax calculator
2. Use tax-free savings accounts
If you have money put away in savings accounts, the interest you earn can also be taxed. Each year, taxpayers get a personal savings allowance (PSA), which is the amount of savings interest you can earn tax-free.
Basic-rate taxpayers get a £1,000 allowance, higher-rate taxpayers get £500, and additional-rate taxpayers receive no PSA at all.
Any interest above your allowance is taxed at your standard income tax rate – whether that is 20%, 40% or 45% (note that while Scottish Income Tax rates differ for salary, savings and dividend income are taxed at the same UK-wide rates).
Savings interest forms part of your taxable income and can push some people into a higher tax band.
For example, if someone earning £50,000 receives £1,000 in savings interest, their taxable income rises above the higher-rate threshold. This reduces their PSA from £1,000 to £500, meaning more of their savings interest becomes taxable.
You can protect your money from tax using Isas, where all growth and interest remain completely tax-free. You can split your £20,000 annual allowance between cash and stocks & shares Isas.
If you're married or in a civil partnership, your partner has their own £20,000 Isa allowance, allowing more savings to be sheltered from tax.
You can also hold up to £50,000 in premium bonds, where any prizes you win are tax-free. Instead of paying interest, your money is entered into monthly prize draws with prizes of up to £1m.
- Find out more: best cash Isas 2026 & best stocks and share Isas 2026
3. Claim all the allowances you can
You may be able to claim tax relief if you've paid for work-related expenses yourself, such as tools, travel, working from home, or maintaining work uniforms.
You can claim for washing, repairing, or replacing workwear, even if it is just a simple branded t-shirt.
The flat-rate uniform allowance of £60 per year saves basic-rate taxpayers £12 a year and higher-rate taxpayers £24, though certain professions like nurses, police officers, and paramedics qualify for much higher allowances.
Once you make a successful claim, HMRC usually leaves the tax relief in place automatically for future tax years.
Finally, if you are married or in a civil partnership, you can transfer £1,260 of your personal allowance to your partner using the marriage allowance, saving up to £252 in tax.
To qualify, one of you must be a non-taxpayer earning under £12,570, while the other must be a basic-rate taxpayer (or paying the starter, basic or intermediate rate in Scotland). You can also backdate your claim by up to four tax years.
- Find out more: tax codes and what they mean
