Tax Planning
How the Freeze on UK Income Tax Thresholds Changes Your Tax Planning in 2025–26
A two-year freeze on income tax thresholds announced in November 2025 means many taxpayers will pay more through inflation alone—this article shows planners how to adapt.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## Understanding the Threshold Freeze
In November 2025, Chancellor Rachel Reeves confirmed that **income tax thresholds will be frozen for two years**. This move replaces earlier plans to raise rates, striking off the 2p rate hike after internal opposition. ([theguardian.com](https://www.theguardian.com/business/2025/nov/14/uk-borrowing-costs-up-after-markets-spooked-by-reeves-income-tax-u-turn?utm_source=openai))
A threshold freeze means that while the thresholds (personal allowance, higher rate cutoff, etc.) stay the same, inflation and nominal wage growth push taxpayers into higher tax bands. It acts much like a stealth tax.
## Implications for Tax Planning
- **Higher marginal rates sooner**: As salaries rise with inflation, people may cross into the higher rate band without any real increase in purchasing power.
- **Loss of real relief**: Reliefs tied to thresholds don’t keep up with inflation, reducing their real value over time.
- **Impact on benefit recipients**: Income-related benefits and charges (for example, tax credits) that phase out above certain thresholds will begin reducing more households’ incomes.
## Actionable Advice
### Review your earnings projections
If you're approaching a threshold (e.g. higher-rate income tax, dividend tax, child benefit charge), try to assess whether you’ll cross over and plan accordingly—consider adjusting income timing or benefits where feasible.
### Use tax-efficient wrappers
Contributions to pensions, ISAs, and charitable donations can reduce taxable income and help avoid threshold creep.
### Consider income shifting
If you're self-employed, work with partners/spouses to redistribute income or defer earnings to future periods—if permitted and sensible—to stay in lower bands.
### Monitor policy changes closely
Threshold freezes are policy levers; further changes like increases in capital gains tax, inheritance tax, or removal of reliefs may be on the table. For instance, freezing inheritance tax thresholds was extended until April 2030 in one recent budget framework. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
## Example by Numbers
If a taxpayer has taxable income of £55,000:
- Suppose the higher rate starts at £50,270. With 3% inflation, their nominal income in two years becomes ~£58,000.
- Without threshold movement, they pay higher rate tax on income from £50,270 to £58,000—about £1,800 more annually versus inflation-adjusted reliefs.
## Final Thoughts
A threshold freeze is predictable once known, but its effects can sneak up via inflation. For employees, self-employed individuals, and business owners alike, planning ahead this tax year—and staying alert to related legislative changes—is vital.