The stealth raid on your income: Why your tax bill is rising

Income tax thresholds have been frozen at the same level since April 2021.

At first glance, this may seem a bit technical and not really a big deal.

In reality, it means the government is taking more tax from your income when you get a pay rise.

The move slowly but surely creates more taxpayers.   

In the 2021/22 tax year there were 33million income taxpayers, according to savings platform AJ Bell.

But the 2025/26 tax year, this number had jumped to 40million. It means that as people have received pay rises or inflation-linked pension increases, millions more have been dragged into paying tax.

UK income tax bands 2026/27 explained

The current UK income tax thresholds for the 2026/27 tax year (England, Wales and Northern Ireland) are:

Personal Allowance (£0 – £12,570)

The personal allowance is £12,570, which is the amount you can earn before paying any income tax.

Basic rate (20%) – £12,571 to £50,270

Income between £12,571 and £50,270 is taxed at the basic rate of 20%.

Higher rate (40%) – £50,271 to £125,140

Income between £50,271 and £125,140 is taxed at the higher rate of 40%.

Additional Rate (45%) – Over £125,140

Any income above £125,140 is taxed at the additional rate of 45%.

This is a progressive tax system, meaning you only pay each rate on the portion of income within that band, not your entire salary.

Frozen tax thresholds are set to stay at this current level until 2031, which means more workers, pensioners and families are expected to pay more tax.

Will frozen tax thresholds push me into a higher tax band?

As workers receive pay rises or more income through pensions, they could find they start to have to pay tax after using all of the personal allowance.

Or their additional income could be pushed into the next tax band.

This may not have happened if tax thresholds were rising at the same pace as inflation or UK wages increases.

It's not just your payslip that will see the difference. If a pay rise tips you into higher-rate tax, your personal savings allowance drops from £1,000 to £500, and any savings interest above that is taxed at 40% rather than 20%.

How can I legally cut my tax bill?

Fortunately, there are legal ways to keep more of your money.

Paying more into a pension can reduce the amount of income that is taxed through salary sacrifice.

Check if your employer offers the scheme.

If you receive income from savings, keeping the money in a Cash ISA will also help protect it from tax.

Sarah Coles, head of personal finance at AJBell, said: "Couples also have options. If you are married or in a civil partnership, you can usually pass assets between you without an immediate tax bill.

"That can help both of you use your allowances more fully. If one person pays a lower rate of tax, holding more savings or investments in their name may mean less tax is due overall."