UK Income Tax Personal Allowance Freeze 2026/27

The Personal Allowance has been frozen at £12,570 since April 2021, and it will stay there until at least April 2028 -- a seven-year standstill that represents the longest freeze in modern UK tax history. As wages have risen with inflation over that period, millions of people have been pulled into income tax for the first time or pushed into a higher rate band, all without a single change to the headline tax rates. This is fiscal drag in action, and understanding it can help you take steps to limit the damage.

What the freeze actually means

Before the freeze, the Personal Allowance had risen most years, broadly tracking CPI inflation under the 'triple lock' commitment on tax thresholds. In 2021/22 it reached £12,570, and at that point the then-government decided to hold it there through to 2026.

Subsequent governments have extended the freeze further -- it now runs to April 2028. Had the allowance continued to rise with inflation at its pre-freeze trend, it would be approximately £14,400 to £15,000 by 2026/27. The gap between £12,570 and where the allowance would otherwise have been is the hidden tax rise.

Every £1 of Personal Allowance that fails to appear costs a basic-rate taxpayer 20p in extra income tax. For a higher-rate taxpayer the cost is 40p per £1 of missing allowance. Across the full frozen period, HMRC's own figures suggest the freeze raises roughly £30 billion per year in additional revenue by 2027/28 -- a significant fiscal tightening achieved without any formal rate announcement.

How many people are affected

HMRC publishes annual statistics on income taxpayer numbers. The freeze has had two distinct effects.

First, it has pulled new people into the income tax net. Workers whose pay has risen above £12,570 -- through minimum wage increases or general pay settlements -- are now paying income tax who were not paying it in 2021. The Office for Budget Responsibility (OBR) estimated this effect at roughly 4 million additional basic-rate taxpayers by 2027/28.

Second, it has pushed existing basic-rate taxpayers into the higher-rate band. The higher-rate threshold is also frozen at £50,270. Anyone whose pay has risen above that line -- perhaps through a promotion or a cost-of-living pay rise -- now faces 40% tax on the excess, plus the loss of their personal savings allowance from £1,000 to £500. The OBR estimates around 3 million people have crossed this threshold as a result of the freeze.

The cost to a typical earner

A concrete example helps illustrate the real-world cost. Consider someone who earned £32,000 in 2021/22 and now earns £38,000 in 2026/27 -- a 19% rise that broadly tracks cumulative CPI inflation over the period.

In 2021/22, their tax was calculated on £32,000 minus £12,570 = £19,430 taxable. At 20%, that was £3,886 in income tax.

In 2026/27, their tax is £38,000 minus £12,570 = £25,430 taxable. At 20%, that is £5,086 in income tax.

The increase is £1,200. But if the allowance had risen with inflation to, say, £14,400, their taxable income would be £23,600 and their tax would be £4,720 -- some £366 less than they are actually paying. That £366 is the annual cost of the freeze to this individual. Over the full seven-year freeze, the cumulative cost builds considerably.

What you can do: pension contributions

The most powerful tool to counter fiscal drag is salary sacrifice into a pension. Pension contributions reduce your adjusted net income -- the figure HMRC uses to assess your tax position -- directly and immediately.

For a basic-rate taxpayer, each £1 contributed to a pension saves 20p in income tax plus a National Insurance saving (8% on contributions made through salary sacrifice). For a higher-rate taxpayer, the saving is 40p per £1.

For 2026/27, the annual pension allowance is £60,000 (or 100% of earnings if lower). You can also carry forward unused allowance from the previous three tax years if you have been a pension scheme member.

If you are approaching the £50,270 higher-rate threshold, a pension contribution that brings your income back below that level is especially valuable -- it saves 40% tax on every pound contributed rather than 20%.

What you can do: ISAs

ISA contributions (up to £20,000 per year) do not directly reduce your income tax bill -- they shelter future investment returns and interest from tax, rather than reducing current income. However, they become especially valuable under the freeze because:

• Cash ISA interest is completely free of income tax, whereas savings interest above your Personal Savings Allowance is now taxable for millions more people.
• Stocks and Shares ISA growth and dividends are completely tax-free, avoiding the reduced dividend allowance of £500.

The Junior ISA allowance is £9,000 per child per year -- useful for families building tax-free pots for their children.

What you can do: Marriage Allowance

If you are married or in a civil partnership and one partner earns below the Personal Allowance of £12,570 while the other is a basic-rate taxpayer (income between £12,571 and £50,270), you can claim Marriage Allowance.

This transfers £1,260 of unused allowance to the higher-earning partner, reducing their tax bill by up to £252 per year. You can also backdate a claim up to four years, potentially recovering over £1,000 in total.

The £100,000 taper: the sharpest edge of fiscal drag

Above £100,000, the Personal Allowance tapers at £1 for every £2 of income over £100,000. This means the allowance is fully withdrawn by £125,140, creating an effective marginal tax rate of 60% in that range (40% income tax plus the loss of allowance at 20%).

Because the £100,000 taper threshold is not indexed to inflation either, more people are being pulled into this trap over time. Someone who has received a series of pay rises and now earns between £100,000 and £125,140 faces a much higher effective tax rate than colleagues earning just below or well above that range.

Pension contributions or charitable donations (Gift Aid) made in this range are disproportionately valuable: each £1 of contribution reduces your adjusted net income and potentially recovers 60p of the otherwise lost allowance.

What is changing and when

The freeze is legislated to end in April 2028. After that, the Personal Allowance is expected to rise with inflation -- though no government has committed to a specific uprating mechanism for after the freeze period.

The OBR's long-run projections assume the allowance will start moving again from 2028/29, but at a rate that will never fully close the gap opened up by the seven-year freeze. Fiscal drag, once embedded, tends to be permanent: the allowance starts rising from a lower base than it would have had the freeze not occurred.

In the meantime, the best defence is consistent use of pension contributions and ISAs to reduce your effective taxable income each year.

Sources

• HMRC: Income tax statistics and distributions 2025-26
• Office for Budget Responsibility: Economic and Fiscal Outlook, March 2026
• gov.uk: Income Tax rates and Personal Allowances
• gov.uk: Marriage Allowance