Frozen thresholds see tax bills spiral again

With over half a million more individuals pulled into the 40% tax bracket, the number of higher and additional rate taxpayers has soared past 8.3 million—a staggering 45% rise since the tax threshold freeze began—driving a £20 billion surge in income tax receipts and pushing the average taxpayer’s bill to nearly £8,300, up £78 billion annually since the onset of the stealth tax.

Laura Suter, director of personal finance at AJ Bell, comments on the latest income tax liability statistics: 

“The deep freeze on income tax thresholds means the Treasury tax take continues to spiral. Last year’s general election saw Rachel Reeves repeatedly commit not to raise income tax on working people. While the government has stuck to the promise for now, the impact of the stealth tax first initiated by the previous government is still being felt by taxpayers.

“Rising incomes and frozen thresholds mean the taxman is set to rake in an extra £20bn this year, with the total income tax haul set to rise to £323bn. In contrast, in the first year of the income tax threshold freeze the government collected £245bn in tax. The staggering £78bn climb in the nation’s annual income tax bill illustrates the huge impact the tax freeze has had on our finances. 

“Everyone is caught by frozen tax thresholds, including pensioners and anyone with earnings above the £12,570 personal allowance threshold. However, it’s those who drift into higher tax bands as a consequence who feel the most pain. Once you move over the £50,270 mark your next pound of earnings is hit with a 40p deduction, rather than the 20p paid by basic rate taxpayers, meaning you see much less of any salary increases in your payslip at the end of the month.  

“The figures published today show that in just the past year alone, from 2024/25 to the current 2025/26 tax year, a further half a million people are estimated to move into the higher rate taxpayer bracket. They now account for almost a fifth of all taxpayers, illustrating that the higher rate of tax, once reserved for those on healthy salaries, is now pretty commonplace. In London, a third of all taxpayers (32%) are now in the higher or additional rate tax bracket.

“Although the 45% additional rate tax bracket is theoretically only applicable to super high earners, there are now a whopping 1.23 million people paying tax on incomes above the additional rate threshold. That’s a staggering 115% increase since 2022/23, partly down to the threshold being cut from £150,000 down to the current £125,140, before then being frozen at that level. 

“In total, there are now just over 8.3 million higher and additional rate taxpayers paying more than the basic income tax rate of 20%. In contrast, that figure stood at just under 5.7 million in 2022/23 when the threshold freeze first applied, an increase of more than 45%.”

“It’s not just working age people who have faced this rising tax tide, pensioners are being hit too. The frozen tax bands combined with chunky increases in the state pension mean that more pensioners are becoming taxpayers. In the current tax year we’re expected to see an extra 420,000 people over state pension age pulled into paying tax. The freeze on tax bands means they’ve been kept at the same levels since April 2021, and during that time it’s expected that almost 2 million more people over the state pension age have become taxpayers.”