Why more people pay higher-rate tax each year, even when their pay barely moves

Nobody voted for a new tax band, and no rate has gone up on a payslip. Yet each year more people find part of their income taxed at 40%. The reason is not a change in the rates but a decision to leave the thresholds where they are.

In England, Wales and Northern Ireland the tax-free Personal Allowance is £12,570 and the higher-rate threshold is £50,270. Both figures applied in April 2021, and both still apply in the 2026/27 tax year. Under the Budget of November 2025 they are set to stay there until 5 April 2031. When wages rise and thresholds do not, a little more of every pay rise lands in a higher band. Economists call it fiscal drag; HMRC's own statistics show its effect.

The bands for 2026/27

Income Tax is charged in slices. The first £12,570 is normally tax-free, the next £37,700 is taxed at 20%, income up to £125,140 at 40%, and anything above that at 45%. Scotland sets its own bands for earnings, so a Scottish taxpayer's 42% higher rate already starts at £43,663 in 2026/27. The Personal Allowance itself is the same across the whole UK.

Source: GOV.UK, Income Tax rates and bands. The Personal Allowance is withdrawn at £1 for every £2 of adjusted net income above £100,000.

Why a frozen line pulls more people over it

A threshold that stays still behaves like a ceiling that slowly lowers in real terms. If prices and wages rise by a few per cent a year, £50,270 buys and represents less each year, but it remains the point at which 40% begins. Someone whose pay simply keeps up with prices will, sooner or later, cross it without being any better off.

The same thing happens at the bottom of the scale. A frozen £12,570 means more of a modest income becomes taxable as wages rise, and more people with small incomes, including many who have never thought of themselves as taxpayers, start to pay something.

A worked example with a pay rise that only keeps pace

The table follows one illustrative salary that rises by an assumed 3% a year, roughly in line with prices, while the thresholds stay frozen as currently legislated. In real terms the person is no richer. The share of their pay taken by Income Tax still climbs every year, and in the final year part of it is taxed at 40%.

The knock-on effects of crossing £50,270

The 40% rate is only part of the change. Several other rules are tied to the band you are in.

• Savings interest. The Personal Savings Allowance is £1,000 for a basic-rate taxpayer but £500 for a higher-rate taxpayer, and nothing at the additional rate. Interest above it is taxed at your marginal rate. From April 2027 the savings rates are due to rise by two percentage points, to 22%, 42% and 47%. We look at how this compares with tax-free prizes in our Premium Bonds article.
• Dividends. The dividend allowance is £500, and dividends above it are taxed at 10.75% in the basic band but 35.75% in the higher band in 2026/27.
• Capital gains. Gains that fall into the higher band are taxed at 24% rather than 18%. Our guide to the £3,000 Capital Gains Tax allowance explains how the band is used.

National Insurance and Inheritance Tax follow the same pattern

The freeze is not limited to Income Tax. The Budget measure keeps the National Insurance primary threshold aligned with the £12,570 Personal Allowance and the upper earnings limit aligned with £50,270 for the same years. Inheritance Tax thresholds have also been fixed until 5 April 2031, at £325,000 plus the £175,000 residence band. As house prices rise, more estates reach them; we explain how in our article on the seven-year rule.

Who this matters for, and what to check

Fiscal drag matters most for people whose income sits just below a threshold: earners in the mid-£40,000s, people with a modest income plus some savings interest or rent, and anyone whose income is close to £100,000, where the Personal Allowance starts to be withdrawn. It also matters for anyone who has a little side income and wonders whether HMRC needs to hear about it; our guide to the £1,000 trading and property allowances covers that.

1. Check your tax code on a payslip or in the HMRC app. A wrong code is a common reason for paying too much or too little, which is what a P800 tax calculation later corrects.
2. Look at total income, not salary alone. Interest, dividends, rent and benefits in kind all count towards the bands.
3. Use the reliefs that already exist. Higher-rate taxpayers who give to charity under Gift Aid can claim extra relief, and income from a lodger can be tax-free under Rent a Room.
4. Watch the Budget. The Autumn Budget is due on 28 October 2026. The figures in this article are those in force on 27 October 2026.

The takeaway

Frozen thresholds raise tax quietly, one pay rise at a time. Nothing about it is hidden: the bands are published, the freeze is in legislation and HMRC counts the results. What helps is knowing where your own income sits against £12,570, £50,270 and £100,000, and checking each April whether a modest rise has moved part of it into a new band. For anything specific to you, HMRC's own tools on GOV.UK are free.