Key facts (2026): The UK Budget and Spring Statement 2026 confirmed that income tax thresholds remain frozen until 2028, continuing the fiscal drag that pulls more earners into higher tax bands each year. National Insurance employer rates increased from April 2025. Capital gains tax rates were aligned closer to income tax rates from October 2024.
Understanding what each Budget means for your take-home pay, savings, and benefits is essential financial planning. The cumulative effect of threshold freezes, NI changes, and benefit uprating determines whether you are better or worse off in real terms year by year.
Income Tax Threshold Freeze — Fiscal Drag
The personal allowance (£12,570) and higher rate threshold (£50,270) are frozen until at least 2028. With wages rising, this means more people are being pulled into the 20% basic rate band and the 40% higher rate band each year — even without a formal tax increase. A worker earning £48,000 in 2022 who has received 3% annual pay rises now earns approximately £52,440 — crossing the higher rate threshold without any change in tax rates. This is called fiscal drag.
National Insurance Changes 2025–26
From April 2025: employer NI rate increased from 13.8% to 15%; employer NI threshold reduced from £9,100 to £5,000/year. This increases employment costs for businesses and is expected to reduce hiring and real wage growth. The Employment Allowance (which offsets NI for smaller employers) increased to £10,500 to partially offset the impact on smaller businesses. Employee NI rates remain 8% (basic) and 2% (above upper earnings limit).
Capital Gains Tax Changes
Capital gains tax rates on most assets were increased in the October 2024 Budget: basic rate taxpayers: 10%→18% on most assets; higher rate: 20%→24% on most assets. Residential property rates remain at 18% and 24% (basic and higher). The annual CGT exemption was reduced to £3,000 from April 2024 (from £12,300 in 2022). These changes significantly increase the tax cost of selling investments, second properties, and business assets.
Our Verdict
The combination of frozen thresholds, higher employer NI, and increased CGT represents a significant stealth tax increase over 2024–26. Workers earning above £50,270 are particularly affected — fiscal drag pulls more of their income into higher rate tax while CGT changes reduce investment returns. Maximising ISA contributions, pension contributions, and other tax-efficient wrappers has become more important than ever.
Frequently Asked Questions
What changed in the UK Budget 2026?
Income tax thresholds remain frozen (fiscal drag), employer NI increased to 15% from April 2025, and CGT rates increased in October 2024.
What is fiscal drag UK?
When income tax thresholds are frozen while wages rise, more income falls into higher tax bands without any formal tax rate increase. It is an effective tax rise through inaction.
How did CGT change in the UK?
From October 2024: basic rate CGT increased from 10% to 18%; higher rate from 20% to 24% on most assets. Annual exempt amount reduced to £3,000.
Related Articles:
Disclaimer: For informational purposes only. Verify with official sources before making decisions.
Last updated: April 2026 · Author: Chandraketu Tripathi
Part of our complete guide:
