Politics · United Kingdom · 2 hrs ago
Frozen UK income tax thresholds will keep pulling more people into tax
Chancellor Healey is keeping UK income tax thresholds frozen until 2031.
The personal allowance is the amount people can earn before paying income tax, and it currently stands at £12,570.
Because wages have risen, more people are being drawn into paying tax or moving into higher tax bands.
The IFS estimates more than six million extra people will pay income tax by 2031 because of the freeze.
More than half of higher earners would consider turning down a pay rise to avoid tax, according to a survey cited in the coverage.
Unfreezing the allowance now could save basic-rate taxpayers up to £198 a year and higher-rate taxpayers up to £395.
For some middle earners, cuts to National Insurance since 2024 have offset the higher income tax bill, and the eventual impact will depend on future wage growth.
The UK’s frozen personal allowance is expected to draw more than six million additional people into paying income tax by 2031, according to the Institute for Fiscal Studies.
The allowance remains at £12,570, so income above that amount is taxed at 20% for basic-rate taxpayers.
If the allowance had risen with inflation over the past five years, it would now be £16,070, the BBC reported.
The freeze is set to continue until 2031.
A cut to National Insurance contributions introduced in 2024 has offset higher income tax bills for people in the middle of the earnings range.
- Who
- UK taxpayers, including people who may be drawn into paying income tax or higher tax bands.
- What
- Frozen income tax thresholds are increasing the number of people paying income tax and pulling more people into higher tax bands after pay rises.
- When
- The thresholds have been frozen for years and are due to remain frozen until 2031.
- Where
- The United Kingdom.
- Why
- Wages have risen sharply in recent years, while the thresholds have stayed fixed.
This story does not have two clearly opposing sides.
A cut to National Insurance contributions was introduced, offsetting higher income tax bills for people in the middle of the earnings range.
The personal allowance is due to remain frozen, and the IFS estimates more than six million extra people will have been drawn into paying income tax.
- Personal allowance
- £12,570
- Inflation-adjusted allowance
- £16,070
- Additional income tax payers
- More than six million by 2031, according to the IFS
- Basic-rate tax above allowance
- 20%
- Threshold freeze
- Due to continue until 2031