Income tax: freezing the personal allowance and the higher rate threshold

In the Spring 2021 Budget the then Chancellor Rishi Sunak announced that the personal allowance and the higher rate threshold would be frozen for the four-year period 2022/23 to 2025/26. At the time this freeze in income tax thresholds was forecast to increase tax receipts by £1.6 billion in 2022/23, and by £8.2 billion in 2025/26.F The then Chancellor confirmed this freeze in the 2021 Autumn Budget in October 2021. The rates of income tax for 2022/23 were unchanged.

The structure of income tax

Income tax is charged at three rates: the basic rate, the higher rate and the additional rate. For 2024/25 these three rates are 20%, 40% and 45%.

Tax is charged on someone’s taxable income at the basic rate up to the basic rate limit. For 2024/25 this is set at £37,700. ‘Taxable income’ excludes personal allowances, which represent the amount of money someone receives free of tax. The personal allowance is set at £12,570 for 2024/25. The higher rate threshold – the point at which individuals become liable to pay tax at the 40% higher rate – is £50,270 for 2024/25.4F

Tax is charged at the 45% additional rate on income above the higher rate threshold. In 2022/23 this threshold was set at £150,000.

HM Revenue & Customs (HMRC) publish details of income tax rates, personal allowances and reliefs for past years.

Income tax receipts and taxpayers

Income tax provides the biggest source of revenue for the government.

Income tax raised £306 billion in 2024/25. By comparison in the same year National Insurance contributions (NICs) and VAT raised £171 billion, and £173 billion. Taken together the three taxes raise just under 60% of UK government receipts.

There are many sources of personal income on which income tax is levied. These include: labour income (the wages and salaries of employees and profits of the self-employed), income from investments (including interest on savings and the rental income from buy-to-let properties) and pensions income (from both the state pension and any occupational or private pensions).

HMRC publish figures for the numbers of individual income taxpayers, and the shares of total income tax liability across percentile groups.

In 2024/25 income tax was paid by around 38 million people. In this year there were 29.9 million basic rate taxpayers, 6.56 million higher rate taxpayers, and 1.14 million additional rate taxpayers.

In 2024/25 the top 10% of income taxpayers contributed around 59% of income tax receipts. The bottom 50% of income taxpayers (with incomes under £30,600) contributed about 10% of income tax receipts. These figures only include those paying income tax. They exclude, for instance, anyone whose income is too low to be charged income tax.

Autumn Statement 2022: extending the freeze for two more years

Following the decision to freeze tax thresholds in the Spring 2021 Budget, in the Autumn Statement in November 2022 the then Chancellor Jeremy Hunt announced that the personal allowance and the higher rate threshold would be frozen for an additional two years, up to April 2028. In addition, the higher rate threshold would be cut from £150,000 to £125,140 from 6 April 2023. Mr Hunt confirmed this extended freeze in the Autumn Statement 2023. Over this period Mr Hunt did not announce any changes to the rates of income tax.

Statutory provision to freeze the personal allowance and higher rate threshold over this period was made under section 5 of the Finance Act 2021, and section 5 of Finance Act 2023.

The current government’s approach

In the Autumn 2024 Budget the Chancellor Rachel Reeves confirmed the freeze in both the personal allowance and higher rate threshold would be maintained until the end of the 2027/28 tax year, and stated they would be uprated in line with inflation after this point (PDF). The Chancellor did not announce any changes in the rates of income tax.

However, in the 2025 Budget the Chancellor announced that these tax thresholds would be frozen for a further three years, up to April 2031 (PDF). The additional rate threshold will also be frozen for this period. Statutory provision to extend the freeze is included in the Finance (No.2) Bill 2024-26, introduced after the Budget (specifically clause 10 of the bill). This measure is forecast to increase tax receipts by £3.1 billion in 2028/29, rising to an additional £11.6 billion in 2030/31 (PDF). It is estimated this decision will bring 700,000 individuals into income tax by 2030/31, compared to if these thresholds were indexed in line with inflation from 2028/29 onwards.

The impact of freezing the personal allowance and higher rate threshold

The OBR have estimated that the freeze in these tax thresholds from 2022/23 to 2030/31 will raise an additional £55.5 billion in 2030/31 (PDF).

The OBR forecast that this policy will result in an additional 5.2 million individuals paying income tax, and 4.8 million more people paying the higher rate in 2030/31. The OBR also forecast that 600,000 more individuals will have moved to the additional rate band. The proportion of taxpayers paying the higher or additional rate is forecast to rise from 15% in 2021, to 24% in 2030/31.

Total receipts from income tax are forecast to rise from £251 billion in 2022/23 to £427 billion in 2030/31.

Further reading

The Library briefing Tax statistics: an overview provides an overview of tax statistics, including recent trends and forecasts. Section 3 of the briefing presents more information on how the amounts of tax paid varies across individuals or households with different incomes and how taxes affect incomes.0F

The impact that inflation has on tax receipts and the number of taxpayers paying more in tax when allowances and thresholds are frozen is known as ‘fiscal drag’. The Library briefing Fiscal drag: an explainer discusses this in more detail.