In the Autumn Budget 2025, the Chancellor confirmed that income tax thresholds and allowances will stay under pressure for quite some time. The Government chose not to increase the main tax rates. Instead, it will keep key income tax thresholds frozen and use that freeze to raise more revenue over the next few years.
As pay and other income rise, more people will move into higher tax bands. That gradual shift is often called “fiscal drag”.
Personal allowance and income tax thresholds
From 2026/27, the core thresholds stay at today’s levels:
- The personal allowance stays at £12,570.
- The higher rate threshold stays at £50,270.
- The additional rate threshold stays at £125,140.
The Government will keep these thresholds at the same cash values until the end of the 2030/31 tax year.
Because income is likely to grow over that period, more of it will fall into the higher and additional rate bands. Taxpayers can therefore pay more tax even though the rates themselves do not change.
The personal allowance also tapers for higher earners. Once adjusted net income goes above £100,000, the allowance falls by £1 for every £2 of income between £100,000 and £125,140. It disappears completely once income exceeds £125,140.
Savings rate band and starting rate for savings
The starting rate band for savings remains the same for 2026/27:
- The 0% starting rate band for savings income stays at £5,000.
This band applies to savings interest for people with relatively low levels of non-savings income. However, anyone with taxable non-savings income above £5,000 (for example, salary or pension income) cannot use this starting rate band.
The rates on savings income are due to rise in later years, but the structure of bands and allowances for 2026/27 remains unchanged. That structure may still offer planning options for some households.
National Insurance thresholds and allowances
The Autumn Budget also set the direction for National Insurance contributions (NICs).
From April 2028 to April 2031, NIC thresholds for employees and the self-employed stay at their current levels. This three-year freeze will work in a similar way to the income tax threshold freeze and adds to the effect of fiscal drag.
One specific figure stands out:
- The Class 1 secondary threshold – the point where employers start to pay NICs on employee earnings – will be kept at £5,000 a year for that period.
For 2026/27, the NIC structure is:
- Employees (Class 1 – primary) pay 8% on earnings between £242 and £967 per week, and 2% on earnings above £967 per week.
- Employers (Class 1 – secondary) pay 15% on earnings above £96 per week for most employees.
- The primary threshold for employees is £12,570 per year, aligned with the personal allowance.
- The secondary threshold for employers is £5,000 per year.
- The upper earnings limit is £50,270 per year, which matches the higher rate income tax threshold.
There are extra rules for younger employees and for workers in freeports and investment zones. In those cases, employer NICs reduce or drop to zero up to set earnings limits. An employment allowance of £10,500 per business is also available, although a business cannot claim it if the sole employee is a director.
For the self-employed in 2026/27:
- Class 2 NICs stay as a flat voluntary rate of £3.65 per week (£189.80 per year), with a small profits threshold of £7,105 a year.
- Class 4 NICs apply at 6% on annual profits between £12,570 and £50,270, and 2% on profits above £50,270.
- Class 3 voluntary NICs stay at £18.40 per week (£956.80 per year).
Changes to voluntary NICs and working abroad
The Budget also brought changes for people who pay voluntary NICs, especially those who live or work overseas. From 6 April 2026:
- People working abroad will no longer be able to pay voluntary Class 2 NICs.
- Anyone paying voluntary NICs outside the UK will need at least ten years of UK residency or contributions first.
The Government will also start a wider review of voluntary NICs. A call for evidence will appear in the new year. That review may lead to further changes in how people can top up their National Insurance record, particularly where there are gaps because of time abroad or career breaks.
What does this mean in practice?
These decisions on income tax thresholds and NIC limits may look technical. However, they will affect many people over the rest of the decade.
- Employees and company directors are more likely to move into higher tax and NIC bands as pay increases. That can happen even when day-to-day living standards feel similar.
- Business owners and employers will need to factor frozen NIC thresholds into future payroll costs, especially from 2028 onwards.
- Self-employed individuals should watch the rules for Class 2, Class 4 and voluntary NICs, particularly if they plan to work overseas or want to build up entitlement to the State Pension.
For a detailed breakdown of the Budget’s key components, you can view the full document here.