Personal tax threshold freeze extended by three years

The freeze on personal tax thresholds was extended by three years, to 2030-31, in the Autumn Budget of November 2025. The Resolution Foundation, an independent think tank, said the extension of the freeze was the measure that did "most of the revenue raising" in the Budget¹. The Treasury estimates the extension will raise roughly £12bn in extra revenue².

The freeze applies to the personal allowance, which stays at £12,570 for 2025-26 and 2026-27, and to the band thresholds. For England, Wales and Northern Ireland the basic rate of 20 per cent applies to taxable income from £12,571 to £50,270, the higher rate of 40 per cent to £50,271 to £125,140, and the additional rate of 45 per cent above £125,140³. Those earning more than £100,000 have their personal allowance reduced by £1 for every £2 earned over that threshold, so anyone earning more than £125,140 pays tax on all their income³. Income tax thresholds are due to remain the same until the 2031-32 tax year; before the Autumn Statement they were fixed only until April 2028³.

Scotland has six income tax bands and rates: the starter rate (19 per cent), Scottish basic rate (20 per cent), intermediate rate (21 per cent), higher rate (42 per cent), advanced rate (45 per cent) and top rate (47 per cent)³. Rates in 2026-27 are the same as in 2025-26, although the basic and intermediate rate thresholds have increased³. Scottish rates do not apply to savings and dividend income, which are taxed at the rates applying in the rest of the UK³. Income tax in Wales has been devolved to the Welsh government since 6 April 2019, but taxpayers in Wales currently pay the same rates as those in England and Northern Ireland³.

England, Wales and Northern Ireland, 2025-26 and 2026-27³.

The Resolution Foundation said a typical employee will face a £220 higher tax bill in 2030-31 as a result of the freeze extension, and that the eventual nine year freeze will still leave the personal allowance over £1,300 higher in real terms than in 2010-11¹. It added that the freeze is a less progressive way to raise personal taxes than a rise in income tax rates, which would have cost less for anyone earning under £35,000 a year¹. Income tax thresholds have not increased since 2021-22, and the 45 per cent threshold was reduced from £150,000 to £125,140 in 2023⁴.

Why it matters for households

Because the thresholds stay where they are while pay and pensions rise, more people move into higher tax bands without any change to the rates themselves. The Resolution Foundation estimates that decisions at this Budget, alongside earlier ones by this government, have raised incomes for the poorer half by roughly £90 on average and produced losses of £1,000 for the top half¹.

Pensioners are affected in particular. The number paying income tax at 40 per cent or 45 per cent has passed one million this tax year, according to a freedom of information request by pension consultants LCP, up from 494,000 in 2021-22; the number paying the 45 per cent rate has roughly trebled to 115,000 from 39,000 five years ago². The higher rate threshold has been frozen at £50,270 since 2021-22 and the additional rate starting point at £125,140 since 2023-24². Steve Webb, a former pensions minister and partner at LCP, said many people of working age may have expected to be basic rate taxpayers in retirement but few would have expected to pay 40 per cent or more out of their pensions in tax².

Self-assessment income tax receipts reached a record £55.7bn in the first 11 months of 2025-26, 13.5 per cent higher than the previous year and almost double the £29.3bn collected 10 years earlier⁴. Around 12 million people must complete a tax return each year, including four million self-employed people and 1.8 million owner/directors of private limited companies⁴.

What happens next

The freeze runs to 2030-31¹. From April 2026 the basic and higher rates of dividend tax rise by two percentage points⁴. From 6 April 2027 the annual amount that can be paid into a cash ISA falls to £12,000 for those under 65, and tax rates on savings interest rise by two percentage points across the board⁴. The Resolution Foundation noted that more than three-quarters of the Budget's tax changes come in around or after the most likely date of the next election¹.