Fiscal Drag Calculator - What the Threshold Freeze Costs You

Fiscal drag is what happens when the government freezes Income Tax thresholds while your pay keeps rising: more of your income is taxed, and you can be pulled into a higher tax band even though the headline rates never change. With the Personal Allowance frozen at £12,570 and the higher-rate threshold stuck at £50,270 until April 2031, a pay rise that simply keeps pace with inflation can quietly cost you hundreds of pounds a year. The exact bill depends on your salary and how far it moves above each frozen line, which is what a fiscal drag calculator is designed to show you.

• Personal Allowance: £12,570 - frozen until April 2031.
• Higher-rate threshold (40%): £50,270 - frozen until April 2031.
• Additional-rate threshold (45%): £125,140 - frozen until April 2031.
• The freeze was extended by three more years at the Autumn Budget 2025, taking it from 2028 to 2031.
• Forecast to raise about £23 billion for the Treasury - which is why it is often called a "stealth tax".
• Scotland is different: it sets its own Income Tax bands, so Scottish taxpayers face a separate set of frozen and unfrozen thresholds.

What is a fiscal drag calculator and why does the threshold freeze cost me money?

A fiscal drag calculator works out how much extra Income Tax you pay because the tax thresholds have been frozen rather than rising with inflation. In a normal system, the Personal Allowance and the point at which higher-rate tax begins would tick up each year, so a cost-of-living pay rise would not change the share of your income that is taxed. Under a threshold freeze, those lines stay still. Your wage goes up, the frozen line does not, and a bigger slice of your earnings falls into the taxable band - or worse, crosses into the 40% band.

This is the mechanism behind the phrase "dragged into higher rate tax". Nobody voted to raise your tax rate; the rate on paper is identical to last year. But because the £50,270 boundary has not moved since 2021 and will not move until 2031, every inflationary pay rise pushes ordinary employees - teachers, nurses, mid-career professionals - over a line that used to be reserved for genuinely high earners. The result is a higher effective tax rate with no change in the law's headline numbers, which is exactly why economists call frozen tax thresholds a stealth tax.

How the fiscal drag calculator works

The calculation has three moving parts: your current salary, the frozen thresholds, and the pay rises you expect over the years the freeze runs. The fiscal drag calculator compares two worlds. In the first, thresholds stay frozen at today's figures - £12,570, £50,270 and £125,140. In the second, it estimates what your tax would have been if those thresholds had risen with inflation each year, as they normally would. The gap between the two tax bills is the cost of fiscal drag to you personally.

In practice the tool layers each band on top of the last. The first £12,570 of income is covered by the Personal Allowance and taxed at 0%. Income between £12,570 and £50,270 is taxed at the 20% basic rate. Income between £50,270 and £125,140 is taxed at 40%, and anything above £125,140 is taxed at the 45% additional rate. Because none of these boundaries move, the calculator can take any future salary figure you enter, drop it through the frozen bands, and show you precisely how many extra pounds land in the 20% and 40% slices compared with a world where the lines had kept pace with prices.

There is one further trap the calculator accounts for. Between £100,000 and £125,140 the Personal Allowance is tapered away - you lose £1 of allowance for every £2 of income - so the allowance is gone entirely by £125,140. That taper creates an effective 60% marginal rate across that £25,140 band, and frozen thresholds mean more people drift into it every year. You can explore that specific band in more detail with our 60% tax trap calculator.

The frozen tax thresholds for 2026/27

These are the figures the freeze locks in place. For England, Wales and Northern Ireland, they apply for the 2026/27 tax year and, barring a change of policy, every year through to April 2031.

You can see the official version of these bands on the government's Income Tax rates page, and the policy decision that extended the freeze in the Autumn Budget 2025 documents.

How much extra tax does fiscal drag cost as my pay rises?

The clearest way to feel fiscal drag is to watch what happens to a salary as it climbs toward and over the frozen £50,270 line. The table below illustrates how the extra tax builds. It shows the share of income falling into the 40% band purely because the higher-rate threshold has not moved - money that, under uprated thresholds, would still be taxed at 20%.

The "extra tax" column is the 20-percentage-point gap (40% minus 20%) applied to every pound above £50,270. A worker on £55,000 is paying roughly £946 more on that top slice than they would if it were still inside the basic-rate band - and as their pay rises with inflation, that figure grows every single year without the rate ever changing. That is the quiet arithmetic of a threshold freeze calculator: small individual sums that add up to the Treasury's forecast £23 billion.

Who is most affected by frozen tax thresholds?

Three groups feel the pinch hardest. First, anyone earning just below £50,270, because even a modest pay rise tips part of their income into the 40% band for the first time. Second, anyone earning between £100,000 and £125,140, where the Personal Allowance taper stacks a hidden 60% rate on top of the frozen bands. Third, people on lower incomes near £12,570, who are pulled into paying tax at all as their wages rise to meet a Personal Allowance that no longer grows.

It is worth stressing again that Scotland sets its own Income Tax bands. Scottish taxpayers have a different set of rates and thresholds, so the figures on this page apply to England, Wales and Northern Ireland. If you are a Scottish taxpayer, the principle of fiscal drag still bites - frozen and slow-moving thresholds still drag earnings into higher bands - but the specific numbers and band names differ.

How to beat fiscal drag

You cannot move the frozen thresholds, but you can move your taxable income below them. The single most effective lever is pension contributions. Money paid into a pension reduces your taxable and adjusted net income, which can pull you back under the £50,270 higher-rate line, back below £100,000, or out of the additional-rate band - keeping your earnings in a lower band even though the threshold itself has not moved. Here is where to focus.

• Pay more into your pension. A contribution reduces the income that gets dragged into the 40% band. Use our pension tax relief calculator to see how much a contribution saves and how much relief you reclaim.
• Use salary sacrifice. Sacrificing salary for pension cuts both Income Tax and National Insurance, and lowers the gross figure the frozen thresholds are applied to. Model it with the salary sacrifice calculator.
• Mind the 60% band. If you are between £100,000 and £125,140, a pension contribution can restore your Personal Allowance and effectively give 60% relief. The 60% tax trap calculator shows the sweet spot.
• Check your real take-home first. Before changing anything, see exactly what fiscal drag is doing to your net pay with the take-home pay calculator or the income tax calculator.
• Use allowances that are not frozen. ISAs, the personal savings allowance and the dividend allowance sit outside the main Income Tax bands, so shifting income there sidesteps the frozen thresholds entirely.

The point is not to earn less - it is to make sure earnings that would otherwise be dragged into a higher band are diverted into tax-advantaged saving instead. A few hundred pounds of well-timed pension contributions can be worth far more than the same amount left to be taxed at 40%.

Will the freeze really last until 2031?

As things stand, yes. The Autumn Budget 2025 extended the freeze on Income Tax thresholds in England, Wales and Northern Ireland by three further years, taking the original end date of 2028 out to April 2031. The Office for Budget Responsibility's forecasts assume the freeze raises roughly £23 billion over its life, which makes it one of the most significant revenue measures of recent years - and one of the least visible, because it never appears as a rate rise on a payslip. Future budgets could change the policy, but for planning purposes you should assume the thresholds above hold for the 2026/27 year and beyond.

To put your own numbers through the full picture, start with the salary calculator and then layer in pension changes to see how far below the frozen lines you can pull your taxable income.

This article is general information for the 2026/27 tax year and not personal tax advice. Figures apply to England, Wales and Northern Ireland; Scotland has different bands. Your circumstances may vary, so check the current rules on GOV.UK or speak to a qualified adviser before acting.