Why frozen tax thresholds could be costing you thousands

Take David, for example

David’s 48, an operations manager, and gets a steady 3% pay rise most years. Nothing dramatic, no promotion on the horizon, just the normal kind of pay progression most people expect over time.

In 2026 he’s on £58,000, already just over the higher rate threshold, with £7,730 of that taxed at 40%. Run the same 3% rises forward and by 2031 he’s on around £67,200. The threshold hasn’t moved an inch, so now nearly £17,000 of his income sits in that band, more than double what it was.

Figures are illustrative and based on current rules and a standard 3% annual pay increase. Individual circumstances may vary and rules may change.

Had the threshold risen with his pay instead of staying frozen, he’d be paying roughly £1,600 less tax in that final year alone, and over £4,700 less across the years in between. None of that comes from a policy change. It comes from David doing exactly what he’s always done, while the threshold stayed exactly where it was.

Figures are illustrative only. Your own numbers depend on your individual circumstances and may change if tax rules change.

Why the effect grows the longer the freeze continues

Each year the thresholds stay still while average wages move, a slightly larger share of income falls into the higher band than the year before. The freeze has already run since 2021, which means by 2031 it will have been a full decade of this happening year after year.

The table below shows how this builds using the same example salary and pay rises as before. Each column shows a snapshot a couple of years apart: the salary keeps moving, the threshold doesn’t, and the amount taxed at 40% grows each time.

By 2031, more than double the amount of income sits in the higher rate band compared with 2026, without a single change to the tax rate itself.

How this shows up in real life

There’s no rate rise to spot on a payslip and no HMRC letter explaining what changed, because nothing has, on paper. The only way to see the real effect is by comparing this year’s tax bill with what it would have been if the threshold had risen alongside your pay. For most people, the extra tax just becomes part of the background, the way a forgotten subscription becomes part of the monthly outgoings without anyone noticing.

What you can do about it

The freeze itself is fixed, there’s nothing anyone can do about that bit. But how much of your income sits above that line each year is very much something you can influence, and it’s worth looking at now rather than waiting until 2031 to find out what it’s cost you.

Pension contributions reduce the income counted against the higher rate threshold in the first place. ISA allowances mean growth and income from those investments never enter the calculation at all. And if you’re part of a couple, drawing income between you rather than concentrating it with one earner can keep more of it below the higher rate band on both sides.

None of these are one-off fixes for a one-off problem. The freeze runs to 2031, so the planning needs to as well, reviewed regularly rather than set once and left.