The impact of frozen personal allowances

tiemadmin • 10 July 2025

The impact of frozen personal allowances often leads to fiscal drag, a situation where individuals pay more tax as their earnings rise without a corresponding increase in allowances.

This occurs because tax thresholds remain fixed while wages increase, thus pushing more people into higher tax brackets or causing them to pay tax for the first time. Since April 2022, a number of key tax thresholds, including personal allowances, have been frozen and will remain so until at least the 2028-29 tax year.

Fiscal drag is largely driven by inflation, wage growth and the government's decision to keep tax thresholds unchanged. As inflation erodes the value of money, wages rise nominally, but without a rise in allowances, taxpayers are increasingly “dragged” into higher tax bands. This increases tax revenue for the government without changing tax rates, which is why HM Treasury often uses frozen thresholds as a means to boost tax receipts.

Adjusting tax thresholds to align with inflation or another index is referred to as "indexation." The government’s approach to increasing certain thresholds each year based on inflation is called "uprating." However, this policy is not consistently applied. When thresholds are frozen, tax revenues increase for HM Treasury without the need for any adjustments in tax rates. According to the latest estimate from the Office for Budget Responsibility (OBR), the freeze on Income Tax thresholds is projected to generate an additional £38 billion annually by 2029-30.

< Older Post

Newer Post >

Budgeting and forecasting in a period of lower confidence

by tiemadmin • 9 February 2026
Many business owners are entering the new year with a sense of caution. Confidence across the UK business community has softened, driven by continued cost pressures, uncertainty over tax policy and The post Budgeting and forecasting in a period of lower confidence appeared first on Feldon Accountancy.

Business rates support and cash flow for hospitality businesses

by tiemadmin • 9 February 2026
Hospitality businesses continue to operate in a challenging environment. Rising wage costs, energy prices and supply chain pressures have all placed strain on margins. Against this backdrop, recent The post Business rates support and cash flow for hospitality businesses appeared first on Feldon Accountancy.

Eligibility for Business Asset Disposal Relief

by tiemadmin • 5 February 2026
Business Asset Disposal Relief (BADR) can significantly reduce the Capital Gains Tax due when selling a business or shares, but with higher rates coming from April 2026, timing and eligibility matter The post Eligibility for Business Asset Disposal Relief appeared first on Feldon Accountancy.