The 2025 Budget brings a major change that will affect millions: income tax thresholds are frozen until 2030/31. What does this mean for your earnings, savings, and future tax bills? Here’s what you need to know.
What was announced?
One of the headline announcements in the 2025 Budget was the extension of the income tax threshold freeze. Originally set to run until 2028, the freeze will now continue for an additional three years taking us through to the 2030/31 tax year.
What does this mean?
- Income tax thresholds remain unchanged, including the personal allowance at £12,570.
- National Insurance thresholds are also frozen.
With the National Living Wage rising to £12.71 and the basic state pension increasing by 4.8% (to around £12,547) from April 2026, more individuals will find themselves paying income tax for the first time.
The impact of fiscal drag
This freeze creates what’s known as “fiscal drag” – as wages rise, more people are pulled into higher tax bands. According to the OBR, the proportion of taxpayers paying higher or additional rates will jump from 15% in 2021/22 to 24% by 2030/31.
Before 2021, thresholds rose annually, helping workers with inflation-linked pay rises stay in the same tax bracket. Now, those same pay increases could push taxpayers into higher or additional rate bands.
Savings allowance consequences
The freeze also affects the personal savings allowance:
- Basic rate taxpayers can earn up to £1,000 in savings interest tax-free.
- Higher rate taxpayers see this allowance drop to £500.
For example, if a salary increase moves someone into the higher rate band, their £1,000 bank interest would now incur tax on £225 of that amount.
We know tax changes can feel overwhelming, but we’re here to help. Get in touch with your client manager who can help answer questions, discuss how these changes might affect your plans and what you can do next.
Private client and personal tax 
Video Games Tax Credits 
Trusts, IHT and estate planning 
Corporate tax 
