Income Tax Personal Allowance and the basic rate limit, and certain National Insurance contributions thresholds from 6 April 2026 to 5 April 2028
Published 21 November 2022
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Who is likely to be affected
Income Tax, National Insurance contributions (NICs) payers, employers and pension providers.
General description of the measure
The Personal Allowance (PA) and basic rate limit will be fixed at their current levels up to and including 2027 to 2028 tax year. It will set the PA at £12,570, and the basic rate limit at £37,700 for tax years:
- 2026 to 2027
- 2027 to 2028
The Primary Threshold (PT) for Class 1 NICs, the Lower Profits Threshold (LPT) for Class 2 NICs and Lower Profits Limit (LPL) for Class 4 NICs will remain aligned with the Personal Allowance for Income Tax for these years.
The higher rate threshold (the PA added to the basic rate limit) will be £50,270 until 5 April 2028.
The NICs Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) will remain aligned to the higher rate threshold at £50,270 for these years.
Policy objective
This policy supports the government’s objective of putting the public finances on a sustainable path in a way that is fair, with everyone contributing a little and those on the highest incomes taking on a larger burden.
Background to the measure
This measure was announced at Autumn Statement 2022.
Finance Act 2021 fixed the PA and basic rate limit at their 2021 to 2022 levels up to and including 2025 to 2026. The current legislative default is for PA and the basic rate limit to increase in line with the Consumer Price Index (CPI) from 2026 to 2027 onwards.
Changes to the PA will apply to the whole of the UK.
Changes to the basic rate limit, and higher rate threshold, will apply to non-savings and non-dividend income in England, Wales and Northern Ireland and to savings and dividend income in the UK.
Since April 2017, the Scottish Parliament sets the basic rate limit and higher rate threshold for non-savings, non-dividend income for Scottish taxpayers.
Spring Budget 2021 announced that the UEL and UPL would remain aligned with the higher rate threshold for these years, and Spring Statement 2022 announced that the PT, LPL and the LPT would remain aligned with the personal allowance for Income Tax, which was set at £12,570 until 2025 to 26.
Changes to the NICs thresholds will apply to the whole of the UK.
Detailed proposal
Operative date
The measure will have effect from 6 April 2026, for the tax years 2026 to 2027 and 2027 to 2028.
Current law
Section 10 of the Income Tax Act 2007 provides for the basic rate limit. The basic rate limit is indexed with CPI under section 21 of the Income Tax Act 2007.
Section 35 of the Income Tax Act 2007 provides for the PA. The PA is indexed with CPI under section 57 of the Income Tax Act 2007.
Section 5 of Finance Act 2021 disapplies the indexation requirements to fix the PA and basic rate limit at 2020 to 2021 levels until April 2026. Accordingly:
- the PA is set at £12,570 up to and including 2025 to 2026
- the basic rate limit is set at £37,700 up to and including 2025 to 2026
The higher rate threshold is equal to the PA added to the basic rate limit. As a result, the higher rate threshold is set at £50,270 up to and including 2025 to 2026.
The NICs UEL and UPL are set at £50,270 for the 2022 to 2023 tax year.
The PT for Class 1 NICs, LPT for Class 2 NICs and LPL for Class 4 NICs were aligned with the Personal Allowance for Income Tax for the 2022 to 2023 tax year from July 2022.
NICs thresholds for future years have not yet been set, and will be legislated for via the annual setting of NICs rates, limits and thresholds.
Proposed revisions
Legislation will be introduced in the Autumn Finance Bill 2022 to set the PA for 2026 to 2027 at £12,570, and the basic rate limit for 2026 to 2027 at £37,700.
These thresholds will remain set at £12,570 and £37,700 for 2027 to 2028, and the legislative default is that they would rise in line with CPI thereafter.
The following table sets out the thresholds to include the changes from this measure.
| 2026 to 2027 | 2027 to 2028 | |
|---|---|---|
| PA | £12,570 | £12,570 |
| Basic rate limit | £37,700 | £37,700 |
The NICs UEL and UPL will remain aligned to the higher rate threshold at £50,270 until the 2027 to 2028 tax year.
The PT for Class 1 NICs, LPT for Class 2 NICs and LPL for Class 4 NICs will remain aligned with the Personal Allowance for Income Tax until the 2027 to 2028 tax year.
NICs thresholds will be legislated for in the annual setting of NICs rates, limits and thresholds as standard.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| 0 | 0 | 0 | 0 | 0 | +1260 |
These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The costing accounts for behavioural effects, including individuals reducing their taxable income where they have the flexibility to do so.
Impact on individuals, households and families
The impact analysis that follows relates specifically to the impact of the legislative provisions outlined above. Gains and losses are presented compared to the Income Tax and NICs individuals would have faced if these thresholds were indexed with CPI from 2026 to 2027 and 2027 to 2028.
This measure is expected to bring 92,000 individuals into Income Tax and 55,000 into paying NICs by 2027 to 2028 (there will be a significant overlap between these groups).
Actual impacts for individual taxpayers will vary according to individual circumstances.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Income Tax and NICs changes apply regardless of personal circumstances or protected characteristics such as sex, race or disability. Equalities impacts will reflect the composition of the Income Tax and NICs paying population.
Impact on business including civil society organisations
This measure is not expected to have an impact on businesses and civil society organisations. An individual’s PA is reflected in their PAYE tax code. Any changes to individuals’ tax codes are a routine annual event for employers and pension providers. Non-routine changes are handled by HMRC.
Operational impact (£m) (HMRC or other)
HMRC will need to implement minor changes to IT systems to support safe implementation of this measure. These changes are expected to be implemented at minimal cost to HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, contact the Income Tax Structure team by email: [email protected]
Declaration
Victoria Atkins MP, Finance Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.