Analysis reveals that the freezing of tax thresholds has led to seven million individuals being brought into the income tax system.
In the 2025/26 tax year, there were 40 million taxpayers, marking an increase of 1.3 million within a year and a total of 7 million since the freeze on tax thresholds in 2021/22.
Currently, the personal allowance stands at £12,570, indicating the amount one can earn before becoming liable for tax payments.
Earnings exceeding this threshold attract a basic 20% income tax rate, with a higher 40% rate applicable for incomes surpassing £50,270, and an additional 45% rate for earnings exceeding £125,140.
During her Budget announcement last November, Rachel Reeves extended the freeze on tax thresholds for an additional three years, meaning no increase until 2031.
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The process of freezing tax brackets, known as fiscal drag, leads to a gradual increase in the number of individuals falling into higher tax brackets as their income rises over time.
Described as a stealth tax, this method allows the government to collect more tax without explicitly raising the tax rate individuals pay.
The count of income taxpayers is expected to rise continuously until the conclusion of the freeze period.
Sarah Coles, AJ Bell’s head of personal finance, highlighted the importance of exploring strategies to minimize income tax payments due to the increasing number of taxpayers and higher tax rates.
She suggested options such as making pension contributions for tax relief at the highest marginal rate and utilizing Cash ISAs to shield savings interest from tax implications. Additionally, shifting to Stocks and Shares ISAs can safeguard investments from dividend and capital gains tax arising from changes in tax brackets.
In the past tax year, an additional 5,000 estates became subject to inheritance tax, bringing the total to 32,000 estates affected in 2025/26, a rise