The UK personal allowance — the band of income on which no income tax is charged — has stood at £12,570 since April 2021. The freeze was originally announced in the Spring Budget of March 2021 with an end-date of April 2026. It was extended in the Autumn Statement of November 2022 to April 2028. By the time it is forecast to end, the personal allowance will have stood at £12,570 for seven consecutive tax years — the longest freeze in its modern history.
This is the cumulative story of what the freeze has done to UK taxpayers across the period from April 2022 to April 2026, told through the planning conversations we have been having with our owner-managed business and self-employed client base.
What a £12,570 personal allowance was worth in 2021
When the £12,570 figure was set in April 2021, it represented roughly 40% of the median annual full-time earnings of around £31,000. By April 2026, median full-time earnings have risen materially, and the £12,570 allowance represents a smaller proportion of the median wage than it did at the start of the freeze period. The same nominal allowance — measured in real purchasing power — has lost meaningful value over the five years to April 2026.
The basic rate taxpayer impact
For a basic rate taxpayer on a typical salary, the cash impact of the personal allowance freeze has been small in any individual year. The 20% basic rate applied to the additional pounds of taxable income produces a modest annual figure. Across five years of nominal wage growth, the cumulative effect has built up but has been partly offset by the 2024 cut in the main rate of Class 1 NIC from 12% to 8%.
For a basic rate taxpayer with modest savings or rental income, the effect has been more uneven. The interaction between the personal allowance, the starting rate for savings, and the personal savings allowance has remained complex throughout the freeze period, and several of the smaller allowance interactions have been quietly disadvantageous as wages rise into and through the basic rate band.
The higher rate taxpayer impact
The combined freeze of the personal allowance at £12,570 and the higher rate threshold at £50,270 has produced the most substantial fiscal drag effect for higher rate taxpayers. The freeze captures more taxpayers in the higher rate band each year and increases the proportion of income taxed at 40% rather than 20% for those already in the band.
For a director-shareholder drawing a mixed salary and dividend remuneration package, the higher rate threshold freeze has eroded the headroom for tax-efficient dividend extraction. The classic optimisation — paying a director's salary up to the secondary NIC threshold and then drawing dividends to fill the basic rate band — has become less generous each year as the basic rate band itself has been chipped away by wage growth feeding through into other income sources.
The £100,000 abatement — a permanent cliff
The personal allowance taper at £100,000 of adjusted net income remains the most punishing single feature of the UK income tax system. The taper withdraws £1 of personal allowance for every £2 of income above £100,000, producing an effective 60% marginal rate on income between £100,000 and £125,140. The £100,000 threshold has been frozen since 2010 — sixteen years and counting.
For a higher earning director-shareholder, the £100,000 cliff has driven a continuous stream of planning conversations across the period. Pension contributions, salary sacrifice, gift aid, and dividend timing have all been used to manage adjusted net income below the threshold where possible. The Spring Budget of March 2023 raised the pension annual allowance from £40,000 to £60,000 and removed the Lifetime Allowance charge, which materially widened the room for pension-based mitigation. Our tax planning team built the £60,000 annual allowance into every relevant high-earner planning model from spring 2023 onward.
Interactions with the high-income child benefit charge
Through the early part of the freeze period, the £50,000 high-income child benefit charge threshold sat exactly at the higher rate threshold. From April 2024, the high-income child benefit charge threshold was raised to £60,000 with full withdrawal at £80,000. The reform partly resolved the punishing interaction with the higher rate band but left the underlying mechanism in place. For directors with two or more children, the effective marginal rate in the £60,000 to £80,000 band remained materially above the headline higher rate during the relevant years.
The 2028 forecast end-date
The freezes are currently legislated to end in April 2028. Two further full tax years of freeze remain at the time of writing. Any future government can extend, reduce, or accelerate the end-date through a future Budget — and given the revenue raised by the mechanism, future extensions cannot be ruled out. We continue to model client positions through to April 2028 on the assumption of the legislated end-date while flagging the political risk that extensions could be announced in future fiscal events.
What we tell clients
The personal allowance freeze is not, on its own, the largest single tax measure of the period. But it interacts with every other personal tax decision a client makes — dividend timing, salary structure, pension contributions, charitable giving, savings, rental income — and the cumulative effect over five to seven years is substantial. We build a multi-year personal tax position into every high-earner planning engagement and review it annually against the actual wage and income trajectory.
If you would like a multi-year personal tax review applied to your own circumstances, book a planning call with our team.