HMRC has confirmed the future of the Tax-Free Personal Allowance threshold. From April 6, the tax-free Personal Allowance was reset for the new tax year, at £12,570 again.
The government explains: “The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on. Example: You had £35,000 of taxable income and you got the standard Personal Allowance of £12,570. You paid basic rate tax at 20% on £22,430 (£35,000 minus £12,570).”
The thresholds will be frozen all the way to 2031, it has also been confirmed. BBC and ITV star Martin Lewis explained on his live ITV1 show in November: “Let’s start with by far the biggest tax rising measure that’s gonna cost everyone, it’s called fiscal drag. It’s the freezing of your Income Tax and National Insurance rates. Now, I’ve ignored NI cos it complicates it. This is for employees and Scotland has different rates but it’s really the principle I’m gonna talk about.
“You don’t pay anything on the first £12,570 of your income, you pay 20% on everything you earn above that, not below that, the 40% higher rate starts at £50,270, then you’ve got this weird strange thing where you start to lose your tax-free Personal Allowance once you earn £100,000 so you’ve got an effective 60% tax rate, then once you get to £125,000 you’re paying a top rate of tax, 45%.
“Fiscal drag means those thresholds are frozen. Now they were frozen until 2028, what the Chancellor has announced is that they’re now frozen until 2031.”
In fiscal terms, the impact of threshold freezes has already been substantial. Freezes to the thresholds at which the basic (20%) and higher (40%) rates of income tax begin to apply are alone expected to raise £39 billion a year in 2029–30 (roughly similar to the amount of revenue that would be raised by increasing all rates of income tax by 3½ percentage points).
Similarly, the thresholds at which employee and self-employed NICs begin to apply have been frozen in cash terms since July 2022 and April 2023 respectively (having been significantly raised shortly before that). Meanwhile, the threshold at which the top rate of NICs begins to apply has been frozen since April 2021; together these NICs threshold freezes are set to raise £3 billion a year in 2029–30.
The threshold at which employer NICs begin to apply has also been frozen in cash terms since April 2022, but was then subject to a large one-off reduction (i.e. a tax rise) in April 2025.
