In the Autumn Budget 2025, the government confirmed a major extension to the freeze on key Income Tax thresholds. If your wages are rising, you need to know about the impact of Fiscal Drag.
What Just Happened? (The Freeze)
The Personal Allowance (the amount you earn tax-free) will remain at £12,570 until April 2031.
Crucially, the Higher Rate Tax Threshold also remains frozen at £50,270 until the same date.
The Real Impact: What is ‘Fiscal Drag’?
This seven-year freeze is a stealth tax known as Fiscal Drag.
- The Problem: Your salary increases (due to inflation or a pay rise), but the tax thresholds stay exactly the same.
- The Result: A larger portion of your income is pushed out of the tax-free band, and more middle earners are dragged into the 40% Higher Rate Tax band for the first time.
The government estimates this measure will raise billions, as millions more workers pay a higher effective tax rate.
🎯 Protect Your Earnings: Key Action
Don’t let Fiscal Drag silently increase your tax bill! Proactive tax planning is essential to mitigate this extended freeze.
We specialise in using digital, cloud-based strategies to help you navigate rising tax burdens. Talk to us today to review your current tax position and explore strategies like maximising pension contributions or ISA limits.
Keywords: Income Tax Thresholds, Personal Allowance Freeze, Fiscal Drag, Budget 2025 Tax Changes, Higher Rate Tax, UK Tax Planning.
