Even where headline income tax rates remain unchanged, your tax bill may not.
That’s because tax thresholds remain frozen, meaning more of your income can become taxable over time or fall into a higher tax band as earnings increase – a process often referred to as fiscal drag.
The current GOV.UK income tax guidance confirms that for the 2026/27 tax year:
• The Personal Allowance remains £12,570
• Basic rate tax applies from £12,571 to £50,270
• Higher rate tax applies from £50,271 to £125,140
• Additional rate tax applies above £125,140 in England, Wales and Northern Ireland.
Finance Act 2026 has legislated for the freeze to continue until 5 April 2031.
The Personal Allowance will remain £12,570, the basic rate limit £37,700, and the higher-rate threshold £50,270 throughout that period.
What this means for you
A pay rise doesn’t always mean you’ll take home significantly more.
Employees, pensioners and anyone receiving savings or rental income should remember that unchanged tax rates do not necessarily mean an unchanged tax bill.
It’s also important to be aware that the Personal Allowance reduces by £1 for every £2 of adjusted net income above £100,000, before reducing to nil once adjusted net income reaches £125,140.
Planning ahead
Reviewing your tax position regularly can help avoid unexpected surprises.
It may be worth checking your tax code and reviewing pension contributions or Gift Aid payments where appropriate. If your income is approaching the £100,000–£125,140 range, understanding how the Personal Allowance taper works can become particularly valuable.
Fiscal drag is often described simply as the tax rise that happens when thresholds don’t move. Over time, it can have a noticeable impact on your overall tax position.