UK personal allowance freeze costs workers £3,500 in tax

Analysis by AJ Bell estimates that if the UK personal allowance had kept pace with inflation, it would be £16,072 for the 2026/27 tax year – about £3,500 higher than the frozen level of £12,570. The allowance was frozen in March 2021 by Chancellor Rishi Sunak and the freeze has been extended to 2031 under successive chancellors.

The freeze means many workers and pensioners now pay hundreds of pounds more tax each year. With the full new State Pension at roughly £12,548, there is virtually no headroom before other retirement income becomes taxable, warned Des Cooney of Axis Financial Consultants. Labour leader Andy Burnham said his government will “look at” changing the allowance but offered no immediate commitment.

Experts argue that as the state pension continues to rise under the triple‑lock, the frozen allowance increasingly squeezes retirees, effectively returning part of pension increases via higher income‑tax liabilities.