Key facts
- UK income tax thresholds are frozen until April 2031.
- An estimated 17.9 million people will be paying income tax due to the freeze.
- By the 2027/28 tax year, an additional 12 million people are expected to become higher-rate taxpayers.
- Two million more people are projected to pay the additional rate of income tax by the 2027/28 tax year.
- Approximately 8.2 million individuals over 60 are expected to be affected by the freeze.
- The freeze is estimated to raise billions of pounds for the government.
The UK government's decision to freeze income tax thresholds until April 2031 is set to significantly increase the number of individuals paying income tax and those in higher tax brackets, a phenomenon known as fiscal drag. This policy means that as wages and pensions rise with inflation, more of people's income will fall into taxable territory or higher tax bands, even though the tax rates themselves have not changed.
Official estimates suggest that approximately 17.9 million people will be paying income tax as a result of the freeze. By the 2027/28 tax year, an additional 12 million people are expected to become higher-rate taxpayers, and a further two million are projected to move into the additional rate tax band. The freeze disproportionately affects older individuals, with around 8.2 million people over the age of 60 expected to be impacted, potentially forcing many pensioners to pay tax on their retirement income for the first time.
The extended freeze, which was previously set to end in April 2028, was announced by Chancellor Rachel Reeves, who acknowledged it would hurt working people. The government anticipates that this policy will boost public finances by billions of pounds. However, financial experts warn that this 'stealth tax' will erode the spending power of UK households, and advise individuals to explore financial planning strategies to mitigate the impact.