How the Income Tax Threshold Freeze 2030–31 Could Affect Your Tax Bill

Published by Nida Umair posted in Personal Tax on 9 December 2025

The 2025 Autumn Budget confirmed that the UK income tax threshold freeze will remain unchanged until the 2030–31 tax year. Rates are unchanged. But the amount of tax many people pay will still rise year after year.

This is because the freeze quietly moves more of your income into higher bands as your pay increases. It is often described as a “stealth tax”, and it is expected to raise many billions of pounds for the Treasury over the rest of the decade.

As accountants and tax advisers, we explain what freezing income tax thresholds means in practice, who is most exposed, and what you can do to manage the impact.

What Has the Government Announced?

In summary:

Income tax thresholds are frozen at current cash values until 2030–31.
National Insurance thresholds are also frozen over the same period.
The government expects this to raise significant extra revenue by pulling more people into paying tax and pushing existing taxpayers into higher bands.

The key point here is that you may not see a headline rise in tax rates, but the tax you pay on your income can still increase materially.

Current Income Tax Bands (England, Wales and Northern Ireland)

For 2025/26 the main income tax bands for someone with the standard personal allowance are:

Personal allowance: up to £12,570 – 0%
Basic rate: £12,571 to £50,270 – 20%
Higher rate: £50,271 to £125,140 – 40%
Additional rate: above £125,140 – 45%

If your income is over £100,000, your personal allowance is tapered away at £1 for every £2 above that level until it disappears at £125,140.

These thresholds are the ones that will now remain fixed in cash terms until 2030–31.

(Scottish taxpayers face different bands, but the same principle applies – freezing personal tax thresholds and rising incomes mean more people move into higher rates.)

What Is Fiscal Drag – And Why Does It Matter?

The threshold freeze works through fiscal drag.

In simple terms:

Your wages usually rise over time.
Inflation and promotions can push your pay up, even if you do not feel better off.
If tax thresholds do not rise with inflation, more of your income creeps into higher bands.
Your effective tax rate increases even though the headline rates stay the same.

The Office for Budget Responsibility (OBR) estimates that the various freezes on personal thresholds since 2021 will create hundreds of thousands of new taxpayers and move many more into higher and additional rate tax by 2030–31.

How Many People Will Be Affected?

Independent analysis based on OBR figures suggests that by the end of the freeze:

Around 780,000 people who previously paid no income tax will be brought into basic rate tax.
Around 920,000 existing taxpayers will move into the higher-rate band.
Thousands more will cross into the additional-rate band.
The share of taxpayers paying higher or additional rate tax is expected to rise from about 15% in 2021–22 to around 24% by 2030–31.

In other words, higher-rate tax and additional-rate tax will become far more common, even for people who would not think of themselves as “high earners”.

How the Income Tax Threshold Freeze Can Change Your Take-Home Pay

The exact impact depends on your income, pay rises and other reliefs. But typical patterns look like this:

Workers on modest salaries see more of their pay taxed at 20%.
Middle-income earners are gradually pulled into higher-rate tax.
Some people who were just under the higher-rate threshold now find part of their salary taxed at 40%.
Workers approaching or above £100,000 lose more of their personal allowance and face very high marginal rates in that band.

External estimates suggest:

A worker on around £25,000 in 2030–31 could be paying a few hundred pounds a year more in income tax and National Insurance compared with a scenario where thresholds had risen with inflation.
Someone earning £50,000 over the period of the freeze could pay several thousand pounds more in income tax overall than they would have if thresholds had increased each year.

These are broad illustrations, not guarantees, but they show that the cumulative effect of the freeze can be significant.

Impact on Higher Earners and the £100,000 “Trap”

The threshold freeze is particularly important if your income is near or above £100,000.

Key points:

Once adjusted income passes £100,000, your personal allowance starts to shrink.
Because thresholds are frozen, more people will drift into this range over time.
Between £100,000 and £125,140 the effective marginal tax rate can reach 60% when you factor in the loss of personal allowance plus income tax.

This makes tax planning around bonuses, dividends and pension contributions even more important.

How the Freeze Affects Savings, Dividends and Capital Gains

The threshold freeze does not just affect your salary. Once you move from basic rate into higher or additional rate tax, several other areas shift too:

Personal Savings Allowance

Basic-rate taxpayers can usually receive up to £1,000 of savings interest tax-free.
Higher-rate taxpayers typically get only £500.
Additional-rate taxpayers get no savings allowance at all.

Dividend Tax

The dividend allowance has been cut in recent years.
Moving into higher or additional rate means your dividend tax rate increases.

Capital Gains Tax

Higher- and additional-rate taxpayers often pay higher CGT rates on many assets than basic-rate taxpayers.
More people in those bands means more gains taxed at elevated rates.

Benefits and Charges

Some income-related benefits and charges (for example, the High Income Child Benefit Charge) are triggered at fixed thresholds.
With wages rising and thresholds frozen, more families will be affected.

Practical Steps to Reduce the Impact of Frozen Personal Tax Thresholds

Good planning cannot change government policy. But it can soften the impact of the threshold freeze on your household finances.

Areas to consider include:

Reviewing your overall income mix

Look at the split between salary, bonus, dividends and benefits.
Check where you sit relative to key thresholds (£50,270, £100,000, £125,140).

Pension contributions

Making extra pension contributions can reduce your taxable income.

This can help you:

Stay within a lower tax band.
Restore some or all of your personal allowance if you are above £100,000.

Salary sacrifice arrangements

Salary sacrifice for pensions, electric vehicles or other approved benefits can reduce your gross taxable salary.

Using ISA allowances

While ISA rules themselves are changing, tax-free investment growth and income inside ISAs become more valuable when more people pay higher rates on savings and dividends.

Capital gains and investment planning

Time disposals of assets across tax years where possible.
Consider crystallising gains while you are still in a lower band.

Household-level planning

Where appropriate, couples can sometimes rebalance savings and investments so that more income sits with the lower-rate taxpayer.

Business owners and company directors

Review the split between salary and dividends.
Revisit remuneration strategies in light of the freeze and other Budget measures.

These strategies must always be tailored to your circumstances, risk profile and long-term plans.

How Apex Accountants Tax Planning Can Help You

At Apex Accountants & Tax Advisors, we help clients understand and plan around tax changes like the income tax threshold freeze.

We can support you with:

Personal tax reviews to see how far the freeze is likely to affect you up to 2030–31.
Projections of your future tax bills under different pay and bonus scenarios.
Advice on pension contributions, salary sacrifice and other reliefs to manage exposure to higher bands.
Planning to reduce the impact of the £100,000–£125,140 personal allowance taper where possible.
Structuring tax-efficient withdrawals for business owners and company directors.
Reviewing savings, investment and dividend income to make the most of available allowances.
Family-level planning, including the impact on Child Benefit and other thresholds.
Ongoing monitoring as new Budgets and fiscal statements are released.

Our goal is simple: to keep you compliant while helping you avoid paying more tax than you legally need to.

Conclusion

Freezing income tax thresholds until 2030–31 is one of the most powerful revenue-raising measures in the current tax system. It operates quietly in the background, but its effect builds year after year.

You may:

Pay more tax even if your pay only keeps pace with inflation.
Cross into higher or additional rate tax without feeling “richer”.
See knock-on effects on savings, dividends and capital gains.

Early planning can make a real difference. Understanding where you sit now, and where you may end up by 2030–31, is the first step.

If you would like a personalised view of how the freeze affects you – and what you can do about it – Apex Accountants can help. Contact us to get started.

FAQs on the Income Tax Threshold Freeze to 2030–31

1. How does freezing income tax thresholds increase my tax bill if rates stay the same?

Because your pay can rise while thresholds do not. As your income grows, more of it falls into higher tax bands. This raises the percentage of your income taxed at 20%, 40% or 45%, even though the official rates have not changed.

2. Is the threshold freeze really a “stealth tax”?

Many commentators describe it that way because there is no visible rate rise, yet government revenues grow sharply over time. The OBR and other analysts estimate that freezes to personal thresholds will raise many billions of pounds by 2030–31.

3. Will I definitely move into a higher tax band?

Not necessarily. It depends on your future pay, bonuses and other income. But the longer thresholds are frozen, the more likely it becomes that regular pay rises or promotions will push you over key cut-offs such as £50,270, £100,000 or £125,140.

4. Does the freeze affect Scottish taxpayers too?

Yes, although Scotland has a different income tax structure, with more bands and different rates. The same basic principle applies – if bands stay fixed and incomes rise, more people pay higher rates of tax over time.

5. How does this interact with National Insurance?

The 2025 Autumn Budget also extends the freeze on some National Insurance thresholds. That means more of your earnings will be subject to NI as pay rises, adding to the overall effect on your net income.

6. I earn just under £50,270 – what should I be thinking about?

You are close to the point where higher-rate tax starts. With thresholds frozen, even modest pay rises could move part of your income into the 40% band. Planning options can include extra pension contributions, salary sacrifice or restructuring benefits to manage your taxable pay, where appropriate.

7. I am near £100,000 income – why does that level matter so much?

Once your adjusted income exceeds £100,000, your personal allowance begins to taper away, creating a very high effective marginal tax rate in that band. The freeze means more people will drift into this range by 2030–31 unless they plan carefully.

8. Can pension contributions really help with the freeze?

Yes, in many cases. Pension contributions can reduce your taxable income. This can help you stay in a lower band or reclaim some of your personal allowance, while also building long-term retirement savings. The right level of contribution is personal and should be reviewed in context.

9. Does this change how I should use ISAs and investments?

As more people move into higher bands, the value of tax-free growth inside ISAs and careful timing of gains becomes more important. The freeze does not change basic ISA principles, but it does increase the potential tax cost of interest, dividends and gains held outside tax-efficient wrappers.

10. How can Apex Accountants help me respond to the threshold freeze?

We can model your income and tax position up to 2030–31, identify when you are likely to cross key thresholds, and build a tailored plan. That might include pension and ISA strategies, remuneration planning, and household-level tax planning to keep your position as efficient and compliant as possible.