Frozen Tax Thresholds: Are You Being Dragged Into Higher Tax?

What 'frozen thresholds' means

Income tax thresholds are the income levels where each tax rate starts. Normally they rise with inflation. Instead, the main thresholds have been frozen, and that freeze now runs until April 2031.

When thresholds stay still but wages rise, more of your pay is taxed and a bigger share falls into higher bands. This is known as fiscal drag — a tax rise without the headline rate changing.

• Personal Allowance (0% tax): £12,570.
• Basic rate (20%): up to £50,270.
• Higher rate (40%): £50,271 to £125,140.
• Additional rate (45%): above £125,140.

How fiscal drag works in practice

Imagine you earn £49,000 and get a 4% pay rise to about £50,960. Part of that rise now sits above £50,270, so it is taxed at 40% rather than 20% — you keep less of each extra pound than the headline rise suggests.

Over several years, normal pay rises and inflation push more workers over the £50,270 line for the first time, turning basic-rate taxpayers into higher-rate taxpayers without any change in the rules.

The hidden traps above the thresholds

Crossing into higher rate does more than raise your tax. Your Personal Savings Allowance halves from £1,000 to £500, and dividend and capital gains are taxed at higher rates.

Above £100,000, the Personal Allowance is withdrawn by £1 for every £2 earned, creating an effective 60% tax band between £100,000 and £125,140 — one of the harshest points in the system.

What you can do about it

Pension contributions are the main lever. Paying into a pension reduces your taxable income, which can keep you under the £50,270 or £100,000 thresholds and reclaim allowances.

Salary sacrifice, using ISAs for savings and investments, and splitting income with a partner can all soften fiscal drag. Use our PAYE Salary Calculator to see exactly where your income sits against the bands.

• Pay more into your pension to lower taxable income.
• Use ISAs so savings and investment income stay tax-free.
• Check whether you are near a threshold before taking on overtime or a bonus.

See where your salary sits

Use our PAYE Salary Calculator to break down your income tax, National Insurance and take-home pay, and see how close you are to the next tax band.