You may have had a pay rise in the last year or two and still felt no better off. Rising prices are part of the reason. Another, quieter reason is that the points at which you start paying tax have not moved for years, and they are set to stay where they are until April 2031.
Here we explain what that freeze means for your take-home pay, then cover three simple checks that could put money back in your pocket. Figures are for the 2026 to 2027 tax year and were correct at the time of writing.
What the tax threshold freeze means
For most people in England, Wales and Northern Ireland, Income Tax works like this in 2026 to 2027:
- Personal Allowance: the first £12,570 you earn is tax-free.
- Basic rate: 20% on income from £12,571 to £50,270.
- Higher rate: 40% on income from £50,271 to £125,140.
- Additional rate: 45% on income above £125,140.
If you earn more than £100,000, your Personal Allowance shrinks by £1 for every £2 over that amount, and it disappears completely at £125,140. Scotland sets its own Income Tax bands, although the Personal Allowance is the same.
The Personal Allowance has been £12,570 since April 2021. The government has confirmed that both the Personal Allowance and the £50,270 point where higher rate tax starts will stay at these levels until 5 April 2031. The main National Insurance thresholds are being held in line with them.
How frozen thresholds affect your take-home pay
Normally, tax thresholds rise with prices. When they are frozen, any pay rise you get is taxed in full, and more people are pulled into higher tax bands over time. This is sometimes called fiscal drag.
Two simple examples for someone in England:
- A salary rising from £30,000 to £31,500 means the whole £1,500 is taxed at 20%, so £300 goes in Income Tax before National Insurance is taken off.
- A salary rising from £49,000 to £52,000 takes £1,730 of it over the £50,270 threshold, where it is taxed at 40% rather than 20%.
Nobody's tax rate has gone up, but more of each pound you earn ends up with HMRC. If prices rise faster than your pay, the gap can feel even bigger. Our guide to what rising prices mean for your budget looks at that side of the picture.
Check 1: Is your tax code right?
Your tax code tells your employer or pension provider how much tax-free pay to give you. The most common code is 1257L, which means you get the standard £12,570 allowance. A code beginning with S means Scottish rates apply, and C means Welsh rates.
Codes can go wrong when you change jobs, have two jobs, receive a company benefit or start a pension. Look out for codes ending in W1, M1 or X, which are emergency codes, and for 0T or BR on your main job. You can check your code in the HMRC app or your online account on GOV.UK.
Check 2: Read your payslip properly
It only takes a few minutes each month. Make sure:
- your hours, overtime and any bonus are correct
- the tax code matches the one HMRC holds
- pension contributions are the amount you agreed
- any student loan deduction is expected and on the right plan
If something looks wrong, ask your payroll team first. If you have overpaid tax, HMRC usually sends a calculation after the end of the tax year and refunds the difference.
Check 3: Could you claim Marriage Allowance?
If you are married or in a civil partnership and one of you earns less than £12,570, the lower earner can transfer £1,260 of their Personal Allowance to the other. That can reduce the couple's tax by up to £252 a year. The partner receiving it must pay tax at the basic rate.
It is free to apply through GOV.UK, and you can currently backdate a claim to 6 April 2022 if you were eligible then, so a first claim could include several years at once.
Once you know your real take-home pay, update your budget to match. Our guide to the key numbers in your budget can help. If you are thinking of topping up your income, read up on side income and tax first.
