Set by HM Revenue & Customs, the personal allowance is the amount you can earn before paying any income tax.
But while pay is increasing, the threshold is not moving, creating what some experts are calling a “stealth tax”.
What the £12,570 allowance means now
Right now:
- Earn £12,570 or less and you pay no income tax
- Earn above that and you start paying 20% tax
For example:
- £20,000 salary means tax on £7,430
- £30,000 salary means tax on £17,430
- £50,000 salary means tax on £37,430
The allowance is reflected in your tax code, with 1257L showing the full tax-free amount.
The hidden 60% tax trap for the highest earners
Higher earners are facing a sharper hit than many realise.
Once income passes £100,000:
- The allowance reduces by £1 for every £2 earned
- It disappears entirely at £125,140
This creates an effective 60% tax rate for the highest earners, as people pay higher-rate tax while also losing their tax-free allowance.
Millions pulled into higher tax bands
New figures released by HM Revenue & Customs show just how quickly the tax burden is rising:
- Additional rate taxpayers jumped by 324,000 (56.8%) to 893,000
- Higher rate taxpayers increased by 654,000 (12.8%) to 5.76 million
- Basic rate taxpayers rose by 1.15 million
- Total taxpayers increased by 2.17 million
Tax paid by top earners also surged, with additional rate taxpayers contributing £103 billion.
Expert warning on “fiscal drag”
David Little, partner at Evelyn Partners, said the figures highlight a major shift: “This data reveals how the powerful tide of fiscal drag is increasing the UK tax burden by sweeping millions into higher tax brackets, and into paying tax for the first time.”
He added: “Everyday middle earners will be higher rate taxpayers by 2030, as opposed to the situation a decade or two ago when this band was confined to individuals regarded as ‘high earners’.”
There’s more information on that in Taxing Wages 2026: United Kingdom.
Pensioners now getting closer to the Personal Allowance threshold
The impact is not limited to workers. Rising State Pension payments are also starting to collide with frozen tax thresholds.
According to Derence Lee of Shepherds Friendly: “With the full new State Pension rising to £11,973 in April, and personal allowance now frozen at £12,570 until 2031, more retirees are edging dangerously close to paying income tax on their State Pension.”
He warned that while the triple lock has boosted incomes, it may also create new tax bills:
“If the tax-free allowance remains frozen, some of the recent State Pension increases could effectively be taken back through income tax.”
For pensioners relying mainly on the State Pension, even a small tax charge could have a noticeable impact on everyday finances.
Why more people are paying tax
Because the personal allowance has been frozen:
- Pay rises are pushing workers into tax bands faster
- More income is being taxed at higher rates
- Pensioners are being drawn closer to the tax threshold
Forecasts suggest that by 2030, around a quarter of taxpayers could be paying higher or additional rates.
Experts say there are still ways to limit the impact:
- Increasing pension contributions can reduce taxable income
- Salary sacrifice schemes may help avoid higher tax bands
- Using ISAs can protect savings from tax
- Pensioners may qualify for extra support like Pension Credit
Derence adds: “Those still working part-time may wish to consider additional private pension contributions, while anyone approaching retirement should consider reviewing how ISAs, workplace pensions and diversified investments can help build a more resilient income stream.”
