Personal Allowance Frozen Until 2028 — The Fiscal Drag Effect

The personal allowance of £12,570 and the higher-rate income tax threshold of £50,270 have been frozen since April 2021 and will remain at these levels until at least April 2028, as confirmed in the Spring Statement 2025. This prolonged freeze, spanning seven tax years, represents one of the largest stealth tax increases in modern UK fiscal history. As wages rise through inflation and general earnings growth, an increasing number of taxpayers are being pulled into higher tax brackets without any change to headline rates — a phenomenon known as fiscal drag.

The impact is particularly acute in two zones. First, workers whose earnings have risen from below £50,270 to above it now pay 40% on the excess, where previously they would have remained basic-rate taxpayers. The OBR estimates that by 2027/28, around 1.5 million additional people will be paying higher-rate tax compared to a scenario where thresholds had been uprated with inflation. Second, for those approaching or crossing the £100,000 threshold, the interaction between the frozen personal allowance and the £100k taper creates an especially punishing marginal rate: every £2 earned above £100,000 costs £1 of personal allowance, producing a 60% effective rate on income between £100,000 and £125,140.

For high earners, the effects of this freeze are increasingly significant. Some tools that may be relevant include salary sacrifice into pensions, employer-provided benefits in kind, and charitable giving via Gift Aid — all of which can reduce adjusted net income. Individuals earning near key thresholds may wish to review the tax implications of pay rises, particularly if a modest increase has moved them into a different bracket. The freeze also affects the relative value of ISA contributions and other tax-sheltered savings, since the tax impact of remaining below these frozen thresholds changes each year in real terms.