Every April, the UK tax year resets. For most workers, 2026/27 looks almost identical to last year on paper. The headline rates haven't moved. The thresholds haven't changed. And yet a large number of people will find themselves paying more tax than they did twelve months ago.
That's not a mistake. It's the result of a policy that's been running quietly in the background since 2022.
Income tax rates for England, Wales and Northern Ireland are the same as last year. There's a tax-free personal allowance, a 20% basic rate, a 40% higher rate, and a 45% additional rate for the highest earners. National Insurance rates are also unchanged.
What has changed is the value of money. Wages across the UK have risen — the ONS estimates average earnings growth of around 4% over the past year. The tax thresholds haven't risen with them.
When wages go up but the bands that define how much tax you pay stay fixed, more income gets pulled into higher brackets. Economists call this fiscal drag. Most people call it a stealth tax.
MoneySavingExpert founder Martin Lewis described it after last year's Budget: “Freezing thresholds while average earnings rise mean people pay a bigger proportion of their income in tax.” (Source: @MartinSLewis on X, 26 November 2025)
The Office for Budget Responsibility estimates this particular freeze will raise over £55 billion in additional revenue by 2030/31. That money comes from payslips.
The personal allowance — the amount you earn before paying any income tax — has been frozen since April 2022. So has the threshold at which the higher rate kicks in. Under the Finance Act 2026, both figures are now locked in until at least April 2031.
That's nine years without these thresholds moving.
To put that in context: if the personal allowance had risen with inflation since 2021, it would sit closer to £15,000 today rather than £12,570. Workers are paying income tax on roughly £2,400 more of their earnings than they would be under the old uprating system.
The House of Commons Library, which produces independent research for MPs, confirmed this in a briefing published in April 2026. Their analysis found the freeze will drag millions more workers into higher tax bands before it ends.
A few things genuinely shifted at the start of this tax year.
The National Living Wage rose to £12.71 an hourfor workers aged 21 and over — up from £12.21. For 18–20 year olds the new rate is £10.85, and for younger workers and apprentices it's £8.00.
Dividend tax rates increased for the second time in recent years. Basic rate taxpayers now pay a higher percentage on dividend income received outside an ISA. This mostly affects company directors and shareholders who take income as dividends rather than salary.
The flat-rate working from home allowance was scrapped. Since the pandemic, employees working from home could claim a small weekly amount directly from HMRC. From April 2026 that's gone. Employers can still reimburse home working costs tax-free, but where they don't, workers can no longer claim it back themselves.
Making Tax Digital expanded. Self-employed people and landlords earning above £50,000 must now keep digital records and submit quarterly updates to HMRC. The threshold drops further in April 2027.
The state pension rose by 4.8% under the triple lock, reaching £221.20 per week.
Scottish taxpayers operate under a separate set of income tax bands set by the Scottish Government. Scotland has six bands rather than England's three, with rates running from 19% for starter rate taxpayers up to 48% for the very highest earners.
The most notable difference for many workers is that the higher rate threshold is lower in Scotland than in England. A Scottish worker on a mid-career professional salary can find themselves paying a higher marginal rate than a colleague doing the same job south of the border.
The threshold freeze applies in Scotland too, so the fiscal drag effect is playing out there as well — just against a different set of starting points.
One approach a number of workers use to manage their tax position is pension salary sacrifice. Rather than paying into a pension from take-home pay, salary sacrifice involves reducing gross salary before tax and National Insurance are calculated.
Because the reduction happens before tax is applied, less income falls into taxable bands. For workers whose salary has crept above the higher rate threshold due to pay rises, this can bring taxable income back below it. For those in the personal allowance taper zone — where earnings between £100,000 and £125,140 attract an effective marginal rate around 60% — it's one of the few mechanisms available to restore the full allowance.
The SalarySorted calculator includes a pension sacrifice slider. Adjusting it shows exactly what different contribution levels do to take-home pay at any salary.
The rates and changes above affect everyone differently depending on salary, pension contributions, student loan plan and region.
The fastest way to see where you stand for 2026/27 is to run the numbers directly.
Calculate your take-home pay for 2026/27 →
For guidance only — not financial advice. All figures based on 2026/27 HMRC rates as confirmed by GOV.UK and the House of Commons Library, April 2026.