The UK Personal Allowance stays frozen at £12,570 through 2031, deepening fiscal drag — here’s who’s affected by the freeze.
What the Personal Allowance Actually Is
The Personal Allowance is the amount you can earn each year in the UK before paying any Income Tax at all. For 2026/27:
- Standard Personal Allowance: £12,570
- Basic rate limit: £37,700 (taxed at 20% above the allowance)
- Higher rate threshold: £50,270 (allowance + basic rate limit combined, taxed at 40%)
- Additional rate: applies above £125,140, taxed at 45%
Who Is Actually Affected
This is about as broad as a UK tax story gets — the freeze applies to all individual taxpayers across England, Wales, and Northern Ireland, not a narrow subset. But some groups feel it more acutely than others:
- Anyone whose wages have risen with inflation: since the allowance hasn’t moved since 2021/22, a bigger share of every pay rise now falls into taxable territory — this effect is called fiscal drag
- Pensioners: as the State Pension has risen under the triple lock, some pensioners who previously paid no tax at all are now liable for the first time, since their income has grown while the tax-free threshold hasn’t
- Earners between £100,000 and £125,140: face a particularly harsh effect — the allowance itself shrinks by £1 for every £2 earned above £100,000, disappearing entirely at £125,140, which creates an effective marginal tax rate of 60% on income in that band
- Landlords, investors, and people with multiple income sources: a further change taking effect from April 2027 means HMRC will apply your Personal Allowance to earned income first, potentially leaving less of it available to shield rental income, savings interest, or dividends from tax
- Scottish taxpayers: the Personal Allowance itself is UK-wide, but Scotland sets its own rates and thresholds for non-savings, non-dividend income, so the practical impact of the freeze differs slightly north of the border
How We Got to a Freeze Lasting Nearly a Decade
The freeze didn’t start as a decade-long policy — it’s been extended repeatedly:
- 2021 Budget (Rishi Sunak): froze the allowance and higher rate threshold for four years, 2022/23 to 2025/26
- Autumn Statement 2022 (Jeremy Hunt): extended the freeze two more years, to April 2028, and cut the additional rate threshold from £150,000 to £125,140
- 2025 Autumn Budget: extended the freeze a further three years, now running to 5 April 2031
Why a Freeze Raises Money Through Fiscal Drag Without Raising Rates
Fiscal drag is what makes freezing thresholds an effective, if quiet, way for a government to raise revenue without announcing a headline tax increase. As Money Saving Expert founder Martin Lewis has put it, many people believe they’re paying more tax because rates have gone up — when in reality, frozen allowances and thresholds are what’s actually driving the bigger tax bill, even though the percentage rates themselves haven’t changed. The original 2021 freeze alone was forecast to raise an extra £8.2 billion a year in tax receipts by 2025/26.
What You Can Actually Do About It
- Salary sacrifice or pension contributions can reduce your taxable income, which doesn’t undo the freeze but can help manage which band your income falls into
- The Marriage Allowance (£1,260 for 2026/27) lets a lower-earning spouse or civil partner transfer part of their unused allowance to their partner, if eligible
- ISAs remain unaffected by income tax thresholds entirely, since returns within them are tax-free regardless of your income band — worth considering for higher-rate taxpayers looking to shield savings or investment returns