- In the 2025/26 tax year there were 40 million income taxpayers – up 1.3 million in a year and 7 million since the thresholds were frozen in 2021/22 (Numbers of taxpayers and registered traders – GOV.UK)
- In 2025/26, 32,000 estates were liable for inheritance tax (IHT) at death, up by 5,000 since the inheritance nil rate band and residential nil rate band were first both at their current level in 2020/21
- The number of income taxpayers is set to keep rising until the end of the freeze – currently scheduled for 2031
- The number of estates paying inheritance tax at death is also expected to jump by 10,500 in 2027/28
- How to cut your tax bill using pension contributions, ISAs and gifts
Sarah Coles, head of personal finance at AJ Bell, comments:
“Income tax thresholds have been frozen to the spot since April 2021, and inheritance tax bands since April 2020 – both were three prime ministers ago. These tax rules are set to stay until 2031 – and it’s anyone’s guess how many PMs may come and go in the interim. The number of additional taxpayers created by both freezes is impossible to ignore, and likely to increase further.
“In the 2021/22 tax year there were 33 million income taxpayers, and by 2025/26 there were 40 million. It means that as people have received pay rises or inflation-linked pension increases, millions have been dragged into paying tax. This includes an awful lot of pensioners living on very modest personal or workplace pensions.
“The fact that so many more people are paying tax – and so many more doing so at higher rates – means it’s worth considering ways to keep income tax to a minimum. This could include making pension contributions and getting tax relief at your highest marginal rate. It might mean using a Cash ISA to protect your savings interest from tax. If changing tax brackets means paying more tax on your investments, a Stocks and Shares ISA will protect you from dividend and capital gains tax.
Inheritance tax on the rise
“Inheritance tax still only affects those leaving large estates – especially if they are part of a married couple and leaving a property to children. However, 5,000 more estates than in 2020/21 are now getting a tax bill each year, so it’s worth considering whether you can make any gifts during your lifetime to reduce a potential tax bill.
“The frozen nil rate bands mean that the increasing value of things like investments, savings and property automatically pushes more people into paying inheritance tax. To make matters worse, from next April pensions will be included in the calculation, which is estimated to drag another 10,500 estates into the inheritance tax net that year, hike the amount of tax paid by 38,500 estates and increase the tax due by £34,000 each on average.”
