Personal Allowance Frozen Until 2028: The Real Cost to Your Pay

What is the personal allowance freeze?

The personal allowance is the slice of your income you can earn tax-free each year. For 2025/26 it sits at £12,570 — the same figure it has been since 6 April 2021.

In normal times, the allowance rises every year roughly in line with CPI inflation. Between 2010 and 2020 it more than doubled, from £6,475 to £12,500. Then in the March 2021 Budget the Chancellor announced a five-year freeze, later extended in the Autumn Statement 2022 to run until April 2028.

That is seven consecutive tax years with no inflation uplift — by far the longest sustained freeze of the modern era.

Why frozen thresholds are a tax rise in disguise

Economists call it fiscal drag. The mechanism is simple:

1. Wages tend to rise with inflation over time.
2. If allowances and thresholds stay flat in cash terms, every pay rise pushes a bigger share of your salary into the taxed zone.
3. People also get dragged into higher bands — basic-rate taxpayers becoming higher-rate, higher-rate becoming additional-rate.
4. The Treasury collects more tax without any politician having to vote for a rate rise.

The Office for Budget Responsibility estimated in March 2024 that the freeze on the personal allowance and higher-rate threshold together would raise around £42 billion a year by 2028/29 — making it one of the largest single revenue-raising measures in living memory.

What £12,570 would look like with inflation

CPI inflation has been unusually high over the freeze period. Using ONS CPI:

(Figures rounded; based on CPI annual averages published by the Office for National Statistics. The 2025/26 inflation-linked figure assumes ~2% CPI in 2024 and 2025.)

By April 2028 the gap is likely to exceed £3,500 if inflation runs around target.

The real-cash hit on different salaries

What does the £2,830 gap mean in cash today? Each extra £1 of allowance saves you tax at your marginal rate:

• Basic-rate (20%): £2,830 × 20% = £566/year extra income tax.
• Higher-rate (40%): £2,830 × 40% = £1,132/year — though most higher-rate earners are also pulled deeper into the higher band by the frozen £50,270 threshold.
• Additional-rate (45%): £2,830 × 45% = £1,274/year, on top of being dragged further into the 45% band.

National Insurance is also affected. The Primary Threshold for NI is identical to the personal allowance (£12,570). So the freeze also costs a basic-rate employee 8% × £2,830 = £226/year in extra NI.

Total annual cost for a typical basic-rate full-time worker: roughly £790/year — and rising every year the freeze continues.

Worked example — Alex, age 32, £40,000 salary

Alex earns £40,000 in 2025/26 in England.

• Personal allowance: £12,570.
• Taxable pay: £27,430.
• Income tax: £5,486.
• Employee NI: £2,194.
• Net take-home: £32,320 / year.

If the personal allowance had risen to £15,400 with inflation:

• Taxable pay: £24,600.
• Income tax: £4,920 (saving £566).
• Employee NI: £1,968 (saving £226).
• Net take-home: £33,112 / year.

Alex is £792 worse off this year because of the freeze — about £66 a month. By 2028 the gap is likely to be over £1,200 a year.

Worked example — Priya, £105,000, hit by both the freeze and the taper

Priya earns £105,000. The £100,000 personal allowance taper cuts £1 of allowance for every £2 over £100,000:

• Allowance reduction: £5,000 ÷ 2 = £2,500 lost.
• Remaining allowance: £10,070.

If the unfrozen allowance were £15,400, even after the £2,500 taper she would still have £12,900. So the freeze costs Priya two layers of tax:

1. The frozen allowance reduces her tax-free band by £2,830.
2. The taper of a frozen allowance starts biting earlier in real-income terms each year.

For someone in the £100k–£125,140 band, every £1 of lost allowance is taxed at the effective 60% marginal rate, so the freeze is doubly painful here. Many higher earners salary-sacrifice into pension specifically to drop adjusted net income back below £100,000.

What about the higher-rate threshold?

The £50,270 higher-rate threshold has also been frozen since April 2021. The same fiscal drag applies, only more brutally, because the marginal rate jumps from 28% (20% IT + 8% NI) to 42% (40% IT + 2% NI) at that point.

The OBR estimated that around 3.7 million additional people will pay higher-rate tax in 2027/28 compared with 2021/22 — purely because of the threshold freeze, not because anyone got "richer" in real terms.

Scotland's higher-rate threshold has actually been frozen at the lower figure of £43,663 since 2022, dragging Scottish workers into the 42% band even earlier than rUK taxpayers.

How to fight back: what you can actually do

You can't unfreeze the threshold, but you can reduce adjusted net income so less of it falls in the taxed zone.

• Salary-sacrifice into your pension. Contributions reduce gross pay before income tax and NI are calculated. At a 5% match, you typically save 28% on each pound sacrificed (40%+ if higher-rate).
• Use Gift Aid donations. Higher-rate and additional-rate taxpayers can claim back the difference above the basic rate on Self Assessment.
• Maximise your ISA allowance of £20,000. Money inside an ISA generates no additional taxable income to be dragged into higher bands.
• Claim Marriage Allowance if eligible — a partner earning under £12,570 can transfer £1,260 of unused allowance, saving up to £252/year.
• Cycle to Work and EV salary sacrifice schemes reduce gross pay too.
• For the self-employed, incorporate or use the trading allowance carefully — these don't avoid the freeze but reduce taxable profit. See our guide on reducing your income tax bill.

Will the freeze actually end in 2028?

That depends on the Chancellor of the day. The current legislated end date is 5 April 2028. After that, the default in Finance Act is to uprate allowances annually in line with September CPI (the so-called "statutory indexation" mechanism), unless the Chancellor announces otherwise.

Two scenarios to watch:

1. Allowance unfrozen as planned. From 2028/29 it would rise — possibly by 6–10% in one go to catch up partially, depending on inflation in the intervening year.
2. Freeze extended. A future Chancellor needing revenue could simply extend by another 1–3 years. With over £40bn of annual revenue at stake, this is a real possibility regardless of which party is in office.

How to check what the freeze is costing you

The easiest way is to plug your real salary into our calculators:

Then mentally compare to what you would have netted with a £15,400 allowance — that gap is the freeze tax on you, personally, this year.

For higher earners specifically affected by the £100k taper:

Try the calculator

To see exactly how the frozen personal allowance is shaping your monthly net pay, put your salary into our take-home pay calculator. It uses the live 2025/26 thresholds and breaks down income tax, National Insurance and student loan deductions pound by pound.

Sources

• HMRC: Income Tax rates and Personal Allowances — gov.uk
• HM Treasury: Spring Budget 2021 — freeze announcement
• HM Treasury: Autumn Statement 2022 — extension to April 2028
• Office for Budget Responsibility: Economic and Fiscal Outlook, March 2024 — revenue impact of threshold freeze
• Office for National Statistics: CPI inflation series