UK Government Freezes Income Tax Thresholds for Three Additional Years, Impacts Millions' Pay

The government has confirmed that income tax thresholds in the United Kingdom will remain frozen for a further three years, now extended until April 2028. This decision applies to both the point at which individuals begin paying income tax and the threshold for the 40% higher rate, which currently stands at £50,270.

Fiscal Drag on Earners

Originally implemented in 2021 by then-Chancellor Rishi Sunak, the freeze was intended to last until April 2026. The two-year extension means that as wages increase with inflation, more individuals will be drawn into paying income tax for the first time, and a greater number will cross into the higher tax bracket.

This mechanism, known as fiscal drag, has been a significant revenue generator for the Treasury. It functions as a stealth tax, as the actual tax rates do not change, but the proportion of income subject to tax effectively increases for a growing segment of the workforce.

The current personal allowance, the amount an individual can earn before paying income tax, remains at £12,570. The 40% higher rate of income tax continues to apply to earnings above £50,270. With inflation consistently eroding the real value of these fixed thresholds, the policy ensures a broader base of earners contributes more to public finances over time.