UK tax bracket changes 2026: how incomes and thresholds shift

HM Revenue & Customs (HMRC) has confirmed that core Income Tax thresholds for the 2026/27 tax year will remain at their current levels.

This policy, which freezes the Personal Allowance and the Higher Rate threshold, is part of a multi-year strategy currently scheduled to last until April 2031.

For taxpayers across the United Kingdom, these UK tax bracket changes 2026 mean that the boundaries for paying tax are not rising in line with inflation or wage growth.

For residents in England, Wales, and Northern Ireland, these frozen bands imply that pay rises may lead to a higher proportion of income being taxed.

Although the headline tax rates of 20%, 40%, and 45% remain unchanged this April, the lack of adjustment to thresholds affects the final take-home pay for millions of workers.

What are the UK tax bracket changes 2026 for the new tax year?

The central feature of the UK tax bracket changes 2026 is the Personal Allowance, which remains at £12,570 for the fifth year in a row. This is the baseline amount an individual can earn before Income Tax is applied to their wages.

By maintaining these static thresholds during a period of rising wages, the government utilises “fiscal drag.”

As salaries increase to meet living costs, a larger portion of a worker’s earnings may fall into the 20% Basic Rate, while others may cross the £50,270 threshold into the 40% Higher Rate band.

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How fiscal drag affects take-home pay

Fiscal drag occurs when tax thresholds do not keep pace with inflation or pay increases.

For example, if a salary rises from £48,000 to £52,000, the portion of the raise exceeding £50,270 is taxed at the 40% Higher Rate rather than the 20% Basic Rate.

While the individual is earning more in gross terms, their tax liability increases at a faster rate because the brackets have not moved.

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The Additional Rate and Personal Allowance withdrawal

The Additional Rate threshold, which carries a 45% tax rate, stays at £125,140 for the 2026/27 tax year. Taxpayers should also be aware of the rules for earnings over £100,000, where the Personal Allowance is gradually withdrawn.

For every £2 earned above the £100,000 mark, £1 of the Personal Allowance is lost. This results in an effective tax rate of 60% within the £100,000 to £125,140 income range.

This specific tapering of the allowance is a key factor for high-earning professionals to consider when reviewing their annual finances.

Impact on different income levels

The effect of frozen thresholds is distributed differently across the workforce, shifting the tax burden as nominal wages grow.

Low to middle-income earners

While those earning under £12,570 pay no Income Tax, scheduled increases to the National Living Wage in 2026 may bring more part-time and entry-level workers into the tax system for the first time.

For average earners, a larger percentage of their total pay now falls above the tax-free limit compared to previous years.

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Higher-rate taxpayers

The Higher Rate threshold of £50,270 is increasingly capturing professions that were historically considered middle-income.

Crossing this threshold can also trigger the High Income Child Benefit Charge. While the starting point for this charge was adjusted in 2024, the alignment with the 40% tax band remains a significant point for family budgeting.

Other significant tax shifts in April 2026

Dividend Tax adjustments

From 6 April 2026, dividend tax rates are increasing by 2 percentage points. The Basic Rate for dividends moves to 10.75%, while the Higher Rate moves to 35.75%.

The Dividend Allowance the tax-free portion of dividend income remains at £500. This change primarily impacts investors with assets held outside of tax-free wrappers and directors of small companies.

Making Tax Digital (MTD) for Income Tax

April 2026 marks the start of a mandatory digital transition for self-employed individuals and landlords with a combined business or property income exceeding £50,000.

Under Making Tax Digital, these taxpayers must maintain digital records and provide HMRC with quarterly updates rather than relying solely on a single annual Self Assessment return.

Income Tax rates and thresholds for 2026/27

The table below details the thresholds for the tax year starting 6 April 2026 for taxpayers in England, Wales, and Northern Ireland. Please note that Scotland operates a different system with its own specific rates and bands.

Tax Band	Taxable Income Range	Tax Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	Over £125,140	45%

Source: gov.uk / HMRC (Standard Personal Allowance of £12,570 applies).

Options for taxpayers to consider

There are several established methods for managing taxable income that may help individuals mitigate the effects of frozen thresholds.

• Pension Contributions: Increasing contributions can reduce your “adjusted net income.” Since contributions are typically tax-deductible, they can help keep total taxable income below thresholds like the £50,270 or £100,000 marks.
• ISA Allowances: With increases to dividend and capital gains taxes, the £20,000 annual ISA allowance remains a primary tool for tax-efficient saving and investing, as returns within these accounts are exempt from Income Tax.
• Tax Code Verification: It is advisable to check your PAYE code via the HMRC app. Ensuring that your code correctly reflects your circumstances can prevent overpayment or unexpected bills at the end of the tax year.

The UK tax bracket changes 2026 continue a period of fiscal consolidation. While tax rates remain stable, the static nature of the allowances means the effective tax rate for many will rise.

Monitoring income levels and utilizing available tax-efficient vehicles remains the primary way for individuals to manage their liabilities.

Are you reaching a new tax threshold this year? How are you managing your take-home pay in light of these freezes? Share your thoughts in the comments below.

Frequently Asked Questions

Why are tax thresholds frozen?

Freezing thresholds is a method for the government to increase tax revenue as wages rise, without changing the headline tax rates. This is estimated to provide significant funding for public services over the coming years.

Does this apply to Scotland?

No. The Scottish Parliament sets its own Income Tax rates and bands for employment, trade, and property income. Scottish taxpayers typically face different thresholds and an additional intermediate tax band.

Are National Insurance rates changing?

National Insurance thresholds for employees are currently aligned with the £12,570 Personal Allowance. While employee rates were reduced in 2024, the employer National Insurance rate was increased to 15% in April 2025.

What is the “Skills Passport”?

The Skills Passport is a digital record for vocational training and apprenticeships. It is not a tax tool, but it is part of wider government reforms aimed at workforce development in 2026.