Frozen Tax Thresholds Into 2027/28: The Fiscal-Drag Effect Explained
How freezing the Personal Allowance and higher-rate threshold pulls more taxpayers into higher bands as wages rise — explained using the confirmed 2026/27 freeze, with no 2027/28 figures guessed.
What fiscal drag actually is
Fiscal drag is not a new tax. No rate changes, no press conference is required for it to happen — it is simply the mathematical consequence of holding income tax thresholds still while pay packets grow. Every time someone gets a pay rise, whether from inflation-linked uprating, a promotion, or a cost-of-living adjustment, that extra income is taxed against the same fixed bands as last year. If those bands had also risen with wages, a like-for-like pay rise would leave someone in roughly the same position relative to the tax system. When the bands don't move, more of each rise is captured by tax — quietly, without anyone having to vote for a rate increase.
The UK has used exactly this mechanism since April 2021, when the Personal Allowance and higher-rate threshold were frozen in cash terms rather than uprated each year as they normally would be. That freeze has already been extended beyond its original timetable, and it remains in force for the 2026/27 tax year.
The confirmed 2026/27 freeze, as the worked example
Rather than speculate about a future tax year, it's more useful to look at exactly how the freeze works using the numbers that are actually legislated for 2026/27, from CalcHub's verified 2026/27 tax rates:
| Threshold | 2026/27 value | Frozen since |
|---|---|---|
| Personal Allowance | £12,570 | April 2021 |
| Higher-rate threshold (taxable income) | £37,700 above PA (£50,270 gross) | April 2021 |
| Additional-rate threshold | £125,140 | April 2023 |
| NI primary threshold (employee) | £12,570 | April 2022 |
| NI upper earnings limit | £50,270 | April 2021 |
| Personal Allowance taper starts | £100,000 | April 2010 |
Every one of these figures has stayed exactly where it is for several tax years running, even as average wages have continued to rise. That is fiscal drag operating in real time, on the tax year we are actually in.
Worked example: a pay rise walking into a frozen band
Take someone earning £48,000 in 2026/27 who receives a £4,000 pay rise, taking them to £52,000.
- Before the rise: their whole salary sits in the 20% basic-rate band below the £50,270 higher-rate threshold.
- After the rise: £1,730 of the new salary (the slice from £50,270 up to £52,000) falls above the higher-rate threshold and is taxed at 40% income tax instead of 20%, while National Insurance also drops from 8% to 2% on that same slice, since £50,270 is also the upper earnings limit. The remaining £2,270 of the rise, up to £50,270, is still taxed at the basic 20% rate plus 8% employee National Insurance.
If the higher-rate threshold had risen in line with wages instead of staying frozen at £50,270, a comparable pay rise might have kept the whole £52,000 inside the basic-rate band, and the worker would have kept a larger share of their increase. Because the threshold didn't move, part of the rise is taxed at double the marginal rate it would otherwise have faced. Multiply that effect across millions of payslips and frozen thresholds become a significant revenue mechanism without a single headline rate rising.
Check exactly how a pay rise affects your own take-home with
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Open Income Tax calculatorWhy the £100,000 taper zone shows fiscal drag most sharply
The Personal Allowance taper, which withdraws £1 of allowance for every £2 earned above £100,000 until it disappears entirely at £125,140, has stood at those cash thresholds since it was introduced in April 2010. Wage growth over more than a decade means substantially more taxpayers now cross into this zone than when the policy began, each facing an effective marginal rate that can exceed 60% once the lost allowance and National Insurance are combined. This is one of the clearest illustrations of fiscal drag: a threshold designed years ago for a specific slice of higher earners now catches a wider band of the workforce simply because pay has risen and the threshold has not.
Why 2027/28 figures aren't stated here
Income tax thresholds for a future tax year are set by the Chancellor at a Budget or fiscal statement, then legislated through Finance Bill process. As of today, no 2027/28 Personal Allowance, higher-rate threshold, or National Insurance threshold has been confirmed. Any number circulating for 2027/28 before an official announcement is speculation, not policy — this article deliberately avoids stating one, because getting it wrong could mislead readers making real financial decisions.
What can be said with confidence is the mechanism: if a freeze is extended into 2027/28 at the same cash values shown above, or if new values are announced that still lag behind wage growth, the same fiscal-drag effect described in this article will continue to apply. The direction of the mechanism doesn't depend on the specific numbers — only the scale of its effect does.
How to check your own exposure
The most reliable way to understand fiscal drag on your own finances is not to wait for a Budget announcement but to model your current salary against the thresholds that are actually confirmed today, and re-run the numbers whenever you get a pay rise.
- Run your current salary through to see exactly how close you sit to the £50,270 higher-rate threshold or the £100,000 taper start.ƒTry the calculator
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
Open Take-Home Pay calculator - If you're a company director or higher earner, model pension contributions with — increasing pension contributions is one of the few ways to legally reduce adjusted net income and step back out of a taper zone.ƒTry the calculator
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Open Pension calculator - Revisit the calculation every time your salary changes, since a frozen threshold means last year's position doesn't tell you where you'll land after a rise.
Frequently asked questions
What is fiscal drag?
Fiscal drag is what happens when income tax thresholds are frozen (or rise more slowly than wages) while pay keeps increasing with inflation or normal career progression. Because the bands don't move, a growing share of each pay rise falls into a higher tax band or loses more Personal Allowance than it would if thresholds rose in line with earnings. No new tax was announced, but the government collects more tax in real terms — hence 'drag'.
Is the Personal Allowance still frozen at £12,570?
Yes. In 2026/27 the Personal Allowance is £12,570 and the higher-rate threshold is £50,270, both frozen rather than uprated with inflation or wage growth. This freeze has applied since April 2021 and has already been extended more than once. It has not been increased for 2026/27, so it remains at the same cash value it has held for several tax years running.
Has the government confirmed thresholds will still be frozen in 2027/28?
Not with certainty at the time of writing. Threshold policy for 2027/28 is set at a future Budget, not today, so no rate or threshold for that tax year has been legislated. This article deliberately does not state a 2027/28 Personal Allowance or higher-rate figure — check gov.uk or HM Treasury announcements nearer the time for the confirmed position.
How does fiscal drag differ from a straightforward tax rise?
A straightforward tax rise changes a rate or a threshold outright, and is usually announced and debated as such. Fiscal drag raises the effective tax take without changing any published rate — it happens automatically as wages grow into frozen bands. That makes it less visible on a payslip than a rate change, even though the effect on take-home pay can be just as real over several years.
Who is most affected by frozen thresholds?
Anyone whose pay rises over time is affected to some degree, but the effect is sharpest for people crossing a threshold for the first time — for example moving from just below £50,270 to just above it, where the marginal rate on the next pound jumps from 20% to 40%. People near the Personal Allowance taper starting at £100,000 face a similarly sharp change, since it interacts with National Insurance too.
Does fiscal drag affect National Insurance as well as income tax?
It can, if National Insurance thresholds are also held flat while earnings rise. In 2026/27 the employee National Insurance thresholds — the £12,570 primary threshold and £50,270 upper earnings limit — mirror the income tax Personal Allowance and higher-rate threshold, so a frozen income tax band tends to coincide with a frozen NI band, compounding the drag on take-home pay for a given pay rise.
Does inflation make fiscal drag worse?
Yes. Fiscal drag is driven by the gap between wage growth (including inflation-linked pay rises) and threshold growth. The higher inflation runs while thresholds stay fixed, the faster nominal wages catch up to frozen bands, and the more people are pulled into a higher band or lose Personal Allowance for a given real increase in living standards.
How can I check my own position under frozen thresholds?
Use a take-home pay calculator with your actual salary to see exactly how much of any pay rise is taken by income tax and National Insurance at your marginal rate, and how close you sit to the £50,270 higher-rate threshold or the £100,000 Personal Allowance taper. Re-running the numbers after any pay rise is the simplest way to see fiscal drag in action on your own payslip.
Will thresholds eventually be unfrozen?
Threshold freezes in the UK have historically been time-limited policy choices announced at a Budget, and have sometimes been extended beyond their original end date. Whether and when thresholds resume rising with inflation is a policy decision for a future Chancellor — this article does not predict that outcome, and readers should follow official Budget announcements for the confirmed position.
Related reading
UK Income Tax Personal Allowance Freeze 2026/27
The Personal Allowance is frozen at £12,570 until 2028. Learn how fiscal drag is pulling millions into higher tax bands and what you can do about it.
Frozen National Insurance Thresholds: How Fiscal Drag Erodes Pay Rises in 2026/27
How the frozen £12,570 primary threshold and £50,270 upper earnings limit mean a growing share of every pay rise is caught by National Insurance in 2026/27, even though the NI rates themselves haven't changed.
The Income Tax Threshold Freeze 2022-2028: Fiscal Drag and What It Costs You
The freeze on income tax thresholds from 2022 to 2028 is costing millions of taxpayers thousands of pounds through fiscal drag. See the real impact at £30k, £50k, and £80k salaries.