A major tax change has been proposed which would ease the tax burden for many families. Fans of the proposed tax system have set out how the HMRC policy would work and when it would come into force.
A petition has been launched calling for the frozen income tax thresholds to be allowed to rise in line with either the CPI measure for inflation or the rise in earnings, whichever is higher. The petition to Parliament urges for this policy to be enacted by April 2031.
The campaign is also calling for a “one-off sharp upward correction” of the tax thresholds in 2031 “to restore the real value lost over the decade”. You can currently earn up to £12,570 each tax year without paying income tax on your earnings.
In the Budget 2025, Chancellor Rachel Reeves announced the freeze would be extended until April 2031. She admitted at the time that she was asking “ordinary people to pay a little bit more”. The petition states: “The Government has frozen core income tax thresholds (personal allowance £12,570, higher rate £50,270) at 2021/22 levels until April 2031. Nearly a decade of unprecedented fiscal drag.”
Millions pulled ‘into poverty’
Fiscal drag refers to the fact that as earnings increase, you end up paying more tax if thresholds and allowances stay at the same levels. The petition urges: “This stealth tax erodes the real value of allowances and will pull millions more people into poverty by 2031, even if wages rise with inflation.
“If thresholds had been indexed to inflation, the personal allowance would be around £4,920 higher and the higher rate threshold £20,120 higher.”
If the personal allowance was increased by £4,920 and you are on the basic rate of income tax, levied at 20 percent, you would pay £984 less tax a year.
You can read the petition in full on the petition website. Under the current thresholds, your earnings above £50,270 are taxed at 40 percent, while any earnings above £125,140 are levied at the additional rate of 45 percent.
However, another rule to note is that once your income moves above £100,000, you start to lose your personal allowance. You lose £1 of the allowance for each £1 you earn above this amount. This means you get zero personal allowance once your income if your income is £125,140 or more.
