Measure
The government plans to maintain the income tax personal allowance at £12,570 and the higher rate threshold at £50,270 until April 2031. The additional rate threshold will also remain at £125,140.
For national insurance contributions (NICs), the primary threshold (PT) and lower profits limit (LPL) will be held at £12,570 until April 2031. The upper earnings limit (UEL) and upper profits limit (UPL) will also be maintained at £50,270 for the same period. Finally, the employer national insurance secondary threshold (the threshold at which employers become liable to pay employer NICs for an employee) will remain at £5,000 until April 2031.
The freezing of the income tax personal allowance and higher and additional rate thresholds will affect a broad range of UK taxpayers. Employees, employers and self-employed individuals across the UK will see their NICs affected by the frozen PT, LPL, UEL and UPL.
Note: the Scottish government is able to set its own rates of taxation on non-savings, non- dividend income; the rates of tax payable by Scottish taxpayers will be set in the upcoming Scottish budget.
The income tax personal allowance and higher rate thresholds will be maintained until April 2031.
The NICs thresholds for employees, the self-employed and employers will also be maintained until April 2031. The government plans to legislate for these measures through affirmative secondary legislation in early 2028.
While the announcements provide clarity for individuals and businesses, the practical effect of these measures is a form of ‘fiscal drag’. As wages typically rise with inflation, more individuals will find themselves paying tax or NICs at higher rates - or paying more tax overall - than if the thresholds had increased in line with economic growth (the thresholds have remained unchanged since 2022/23). Those affected will need to consider the potential impact of these frozen thresholds on their personal and business finances.