Personal Income Tax in 2025/26: What’s Changing, What’s Not – And Why It Still Matters

Although the Chancellor’s Spring Statement didn’t introduce major new income tax reforms, the 2025/26 tax year will quietly usher in some impactful changes and continue key freezes that affect millions of earners — especially those on middle to higher incomes.

Here’s a breakdown of the most important updates, along with key insights on how to plan around them.

Personal Allowance & Higher Rate Thresholds: Still Frozen, Still Costing You More

The personal allowance – the amount of income you can earn before paying income tax – remains frozen at £12,570, and the higher-rate threshold (when 40% tax starts) stays at £50,270.

These thresholds have not changed since 2021/22, and are expected to remain frozen until April 2028.

Why this matters:

Price inflation from February 2022 to February 2025 was 17.5% (CPI). If the allowances had increased with inflation, we’d be looking at:

• Personal Allowance: £14,770

• 40% Threshold: £59,070

That’s a £9,000+ gap in taxable income compared to where thresholds should be in real terms — pulling more people into higher tax bands without any increase in real income. This is known as fiscal drag, and it’s a significant hidden tax increase.

The £100,000 Trap: An Expensive Cliff Edge

Once income exceeds £100,000, your personal allowance is gradually withdrawn, at a rate of £1 for every £2 of income above that point.

• At £125,140, your personal allowance is gone entirely.

• That means an effective 60% marginal tax rate on income in the band from £100,000 to £125,140.

• This is even higher on dividend income, and worse still for Scottish taxpayers due to higher tax rates.

Additional pain at £100,000:

• You lose eligibility for tax-free childcare, increasing family costs.

• You may see the withdrawal of other allowances and benefits.

• The High Income Child Benefit Charge (HICBC) also comes into play once income exceeds £60,000.

Example:

David earns £110,000 a year.

• He pays 40% tax on income above £50,270.

• He loses £5,000 of his personal allowance, costing him an extra £2,000 in tax.

• Combined with National Insurance, his effective tax rate between £100k and £110k is well over 60%.

Planning tip: Pension contributions or charitable donations can reduce adjusted net income and restore part of your allowance, saving tax.

High Income Child Benefit Charge (HICBC): The Threshold Rises, But Watch the Clawback

As of 2024/25, the HICBC threshold has increased to £60,000, and the full benefit is lost at £80,000. This helps some families, but the mechanism remains the same:

• For every £200 of income between £60,000 and £80,000, you lose 1% of your Child Benefit.

• At £80,000, 100% of the benefit is clawed back.

The government will not change this to a household income test as previously considered – the charge still applies based solely on the income of the higher-earning partner.

From Summer 2025:

A new digital reporting system will allow employed individuals to:

• Report HICBC without registering for self-assessment

• Pay through PAYE rather than via separate tax returns

This is welcome news for those with simple affairs, but directors, landlords and the self-employed may still require full tax returns.

Scottish Taxpayers: Even Higher Effective Rates

In Scotland, the income tax bands and rates are different. The tapering of the personal allowance combined with higher Scottish rates means:

• Marginal rates exceed 60% for Scottish taxpayers in the £100,000–£125,140 bracket.

• Additional tax bands (e.g. the “Advanced” rate) increase complexity and liabilities.

If you’re a higher earner living or working in Scotland, we recommend a personalised tax review.

Summary: Key Thresholds for 2025/26 (UK excluding Scotland)

Note: The 60% marginal rate between £100,000 and £125,140 is due to loss of the personal allowance.

What Should You Do?

The continuation of frozen thresholds, the expansion of HICBC, and high effective tax rates in certain bands mean that proper planning is more important than ever – especially for:

• Business owners and directors

• Families with children

• High earners over £100k

• Those affected by dividend or rental income

• Scottish taxpayers with complex income structures

Let Merranti Accounting Help You Stay Ahead

Our expert tax team can help you:

 Plan income and dividends around thresholds
 Reduce exposure to the 60% marginal rate
 Optimise pension contributions and tax relief
 Manage HICBC effectively and avoid overpaying
 Review your overall tax strategy for 2025/26