Income tax rates have remained unchanged since 2010, while frozen thresholds have increased tax bills through fiscal drag. Personal allowance, higher-rate threshold, and additional-rate threshold are frozen to April 2028, and the OBR estimates this will bring almost 4 million additional people into income tax by 2028/29 and move millions more into higher bands. The personal allowance is reduced above £100,000, creating an effective 60% marginal income tax rate between £100,000 and £125,140. London experiences fiscal drag earlier due to higher concentrations of higher-rate and additional-rate taxpayers and higher average earnings. Higher earners are reviewing pension contributions, ISA usage, income timing, salary and dividend structure, and estate planning to manage exposure.
"The personal allowance remains £12,570, the higher-rate threshold £50,270 and the additional-rate threshold £125,140, frozen to April 2028. The OBR estimates that threshold freezes will pull almost 4 million additional people into income tax by 2028/29, while millions more move into higher bands."
"As earnings rise while thresholds stand still, more income falls into higher bands without any headline rate change. Above £100,000, the personal allowance is reduced by £1 for every £2 of income, creating an effective 60% marginal income tax rate between £100,000 and £125,140."
"London has long had the UK's highest concentration of higher-rate and additional-rate taxpayers, according to HMRC regional data. ONS earnings figures also show London pay running ahead of the UK average, which means fiscal drag reaches many professional households earlier."
"The response is not a single product or quick fix. Informed higher earners are reviewing categories of planning that may help them understand exposure before decisions are made. These include pension contribution strategy, ISA usage within annual limits, income timing, salary and dividend structure, estate planning, spou"
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