You may have noticed your take-home pay shrinking, even without a tax rate increase. This is caused by fiscal drag — when tax thresholds stay the same while wages rise, pushing more people into higher tax brackets. A larger proportion of income is now exposed to tax with more taxpayers crossing into higher tax brackets over time.

The thresholds below have remained stagnant since April 2021

Current Thresholds (2025/26)

• Personal Allowance: £12,570 (income below this is tax-free).
• Basic Rate (20%): Up to £50,270.
• Higher Rate (40%): £50,271–£125,140.
• Additional Rate (45%): Above £125,140.

These thresholds are frozen until 2028, despite rising inflation and wages.

More Taxpayers are now being pushed into Higher Bands as the wages rise disproportionately to the increases in the tax free allowances. The cost of living crisis and the major Reduction in Real Income is partly because of more of our hard earned money that is now going to tax and National Insurance.

• Impact on Benefits: Threshold freezes also affect eligibility for tax-free childcare, marriage allowance, and other reliefs.