Answers · UK 2025/26
What is fiscal drag and how does it affect UK taxpayers?
Fiscal drag occurs when tax thresholds are frozen while incomes rise with inflation, pulling more people into higher tax bands without an explicit tax rate increase.
Full answer
The UK personal allowance is frozen at £12,570 until April 2028. With wage growth of 3-5% annually, millions of people are being dragged into income tax or pushed into higher rate tax without Parliament voting for a rate change. HMRC estimates an additional 2.7 million taxpayers by 2027/28. For an individual earning £49,000 in 2023, a 5% pay rise to £51,450 now falls partly in the 40% higher rate band.
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.