Key Points
- The UK personal allowance remains frozen at £12,570 for the 2026/27 tax year, meaning wages rising with inflation are being taxed sooner.
- HMRC’s latest personal incomes statistics show 36.7 million taxpayers in 2023/24, with higher-rate and additional-rate taxpayers rising sharply.
- Additional-rate taxpayers increased to 893,000, up by 324,000, while higher-rate taxpayers rose to 5.76 million, up by 654,000.
- The frozen threshold is widely described as a form of “fiscal drag”, because it increases tax bills without changing headline tax rates.
- Earnings above £100,000 trigger a taper that removes £1 of personal allowance for every £2 earned, disappearing entirely at £125,140.
- The full new State Pension has risen to £11,973, putting more retirees close to the tax-free threshold and raising concern about future income tax bills.
- Experts say pension contributions, salary sacrifice and ISAs can help reduce the impact of frozen thresholds.
London (Britain Today News) May 7, 2026 – The UK’s frozen personal allowance is continuing to tighten the tax grip on workers and pensioners alike, with rising wages and state pension payments pushing more people into tax bands even though income tax rates themselves have not changed.
Why is the £12,570 allowance important?
The personal allowance is the amount a person can earn before paying income tax, and it is currently set at £12,570. That means anyone earning £12,570 or less pays no income tax, while income above that level is taxed at the basic rate, which is currently 20%.
The problem is not only the threshold itself, but the fact that it is frozen while pay is rising. As salaries increase, more of a worker’s income is dragged into tax bands earlier than it would be if the allowance were rising in line with inflation.
That is why tax specialists describe the system as a stealth tax. The government does not need to raise tax rates to collect more money; the freeze alone increases the effective tax burden on millions of households.
How does fiscal drag affect workers?
Fiscal drag is the term used when inflation, pay rises or both push taxpayers into higher bands while thresholds stay unchanged. In practical terms, a worker on £20,000 pays income tax on £7,430 of earnings, while someone on £50,000 pays tax on £37,430.
For middle earners, this can mean a growing share of annual pay rises is absorbed by tax rather than take-home pay. HMRC’s own statistics underline that the tax base is broadening quickly, with millions more people being pulled into higher bands.
According to HMRC figures published on 28 April 2026, there were 36.7 million taxpayers in 2023/24. Additional-rate taxpayers climbed to 893,000, up 324,000 or 56.8%, while higher-rate taxpayers rose to 5.76 million, up 654,000 or 12.8%.
Those numbers show the scale of the shift. Even when wage gains are modest, a frozen threshold gradually expands the number of people paying more tax than they expected when pay settlements were first agreed.
What happens above £100,000?
The tax pressure becomes much stronger for people earning above £100,000. At that level, the personal allowance begins to shrink, falling by £1 for every £2 earned above the threshold.
Once income reaches £125,140, the allowance disappears entirely. That taper creates an effective 60% tax rate within the affected range because income is taxed at the higher rate while the tax-free allowance is also being removed.
This makes the £100,000-plus band particularly punishing for senior professionals, company directors and other high earners whose pay is rising with inflation or performance. It also means that small salary increases can produce a disproportionate tax hit, especially when bonuses or overtime push income into the taper zone.
Why are pensioners being affected?
The freeze is not only a workplace issue. Rising State Pension payments are now getting closer to the tax-free threshold, creating a new risk for retirees who rely mainly on the State Pension.
The full new State Pension currently stands at £11,973 a year, which is only slightly below the £12,570 personal allowance. Because the allowance is frozen until 2031, future pension increases could push more retirees into paying income tax even if they have no private pension at all.
Derence Lee of Shepherds Friendly warned that the combination of a rising State Pension and a frozen allowance could leave some pensioners with a tax bill. He said:
“With the full new State Pension rising to £11,973 in April, and personal allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their State Pension.”
He added that while the triple lock has increased pension incomes, it can also create a return flow back to the Exchequer through income tax.
“If the tax-free allowance remains frozen, some of the recent State Pension increases could effectively be taken back through income tax,” he said.
What are experts warning?
David Little, partner at Evelyn Partners, said the latest figures show how powerful fiscal drag has become. He said:
“This data reveals how the powerful tide of fiscal drag is increasing the UK tax burden by sweeping millions into higher tax brackets, and into paying tax for the first time.”
He also warned that the trend is reshaping the tax system over time.
“Everyday middle earners will be higher rate taxpayers by 2030, as opposed to the situation a decade or two ago when this band was confined to individuals regarded as ‘high earners’,”
The concern is that workers who once considered themselves comfortably in the middle of the pay scale are increasingly being treated as higher earners for tax purposes. That shift can alter household budgets, pension planning and even decisions about overtime, promotions and salary negotiations.
How can taxpayers reduce the impact?
There are still some ways to limit the effect of frozen thresholds. Increasing pension contributions can reduce taxable income and may help keep someone below a higher band.
Salary sacrifice schemes can also reduce the amount of earnings that are taxed, depending on the employer’s setup. Using ISAs is another way to protect savings and investment returns from tax.
For pensioners and near-retirees, extra support such as Pension Credit may be available in some cases. Derence Lee also said workers still contributing to pensions should review whether additional private pension payments and ISA use could help create a more resilient income stream.
What does it mean for 2026/27?
For the 2026/27 tax year, the allowance is staying fixed at £12,570, so more of any pay rise is likely to be taxed rather than kept. That means households may see their real spending power squeezed even when gross wages look healthier on paper.
The Office for Budget Responsibility has previously noted that freezing personal tax thresholds for years can significantly reduce their real value over time. HMRC’s latest figures now show the scale of the shift in hard numbers, with millions more taxpayers being moved into higher tax categories as the freeze continues.
Forecasts suggest that by 2030, around a quarter of taxpayers could be paying higher or additional rates. If that happens, what was once a threshold for a relatively small group would become a defining feature of the tax system for a much larger slice of the workforce.
