Guides · Bracket creep
Bracket creep and inflation
What bracket creep is
A progressive tax system charges higher rates on higher slices of income. Brackets are denominated in nominal currency — dollars or pounds in the year they were set. If the brackets stay the same in nominal terms and inflation rises, two things happen at once:
- Your nominal salary rises just to keep your real purchasing power flat.
- That same real income now reaches further into the bracket schedule than it did before, so a larger share of it is taxed at higher rates.
The result: your headline tax rate has not changed, your real income has not changed, but your tax bill — as a share of income — has. That is bracket creep.
How it works in practice
Imagine a country where the 20% bracket runs from £12,571 to £50,270. A worker earning £40,000 pays 20% on £27,430 (the slice above £12,570), which is £5,486.
Five years later, the same worker, doing the same job, in real terms, earns £46,000 because wages kept pace with 15% cumulative inflation. The brackets have not moved. Now they pay 20% on £33,430 — which is £6,686.
Their real income is unchanged. Their real tax bill is up by £1,200 a year. The state collects more without anyone voting on a rate increase.
US vs UK indexation
The two countries handle this very differently.
United States. Federal income tax brackets, the standard deduction, and most phase-out thresholds are indexed to inflation every year under IRC §1(f). The IRS announces the new numbers in a Revenue Procedure each autumn. For tax year 2026, the relevant update is Rev. Proc. 2025-32: the 22% bracket for a single filer runs from $48,350 to $103,350, up from $47,150 to $100,525 in tax year 2025. Payroll-tax wage bases also adjust (the Social Security wage base rose to $184,500 for 2026).
United Kingdom. The Treasury sets thresholds, and Parliament votes on them. In recent years, the Personal Allowance and the basic-rate band have been frozen rather than indexed. The Personal Allowance has been £12,570 since 2021/22, and the higher-rate threshold has been £50,270 since the same year. CPI inflation over that period has been material — the Bank of England's CPI has cumulatively risen more than 25% between April 2021 and April 2026.
That is a textbook bracket-creep setup, and it is a deliberate fiscal choice. The Office for Budget Responsibility includes the revenue effect of the freeze in its forecasts.
UK thresholds frozen since 2021/22
The chart in HMRC's annual Rates and allowances: Income Tax publication tells the story better than any prose. The Personal Allowance has been flat for five tax years at the time of writing:
| Tax year | Personal Allowance | Higher-rate threshold (E/W/NI) |
|---|---|---|
| 2020/21 | £12,500 | £50,000 |
| 2021/22 | £12,570 | £50,270 |
| 2022/23 | £12,570 | £50,270 |
| 2023/24 | £12,570 | £50,270 |
| 2024/25 | £12,570 | £50,270 |
| 2025/26 | £12,570 | £50,270 |
| 2026/27 | £12,570 | £50,270 |
In real terms, that £12,570 in 2026/27 is worth about £9,800 in 2021/22 money. A worker whose pay has merely kept pace with CPI since 2021 now crosses into the basic-rate band earlier relative to their real income, and crosses into the higher-rate band earlier too — if their pay rise matched CPI exactly.
HMRC publishes the full table each year in Income Tax rates and allowances for the current tax year on GOV.UK.
US cost-of-living adjustments
On the US side, the indexing happens mechanically. The IRS uses the chained CPI-U (C-CPI-U) — the same index used for Social Security COLAs — to inflate brackets and the standard deduction. The numbers come out in October or November of the year before they take effect.
For tax year 2026, the relevant numbers (single filer, per Rev. Proc. 2025-32) are:
| Item | 2025 | 2026 | Change |
|---|---|---|---|
| Standard deduction (single) | $15,000 | $15,750 | +5.0% |
| 10% bracket top | $11,925 | $12,400 | +4.0% |
| 12% bracket top | $48,475 | $50,400 | +4.0% |
| 22% bracket top | $103,350 | $107,450 | +4.0% |
| 24% bracket top | $197,300 | $205,050 | +3.9% |
| 32% bracket top | $250,525 | $260,400 | +3.9% |
| Social Security wage base | $176,100 | $184,500 | +4.8% |
The numbers do not move at the same rate — the IRS rounds each bracket separately — which is why you see +5.0% on the standard deduction and +4.0% on the brackets in the same year.
Real rate vs headline rate
The TaxMetria calculator shows nominal rates against nominal thresholds, which is what every payslip and tax bill uses. The "real" rate — your effective tax burden adjusted for inflation — is a separate concept and almost never shown on a payslip.
If the UK keeps freezing thresholds and CPI keeps running at 2-3%, the real tax burden on the same real income rises by roughly that percentage a year. Over five years, that's not a rounding error. The OBR publishes the projected revenue effect of the freeze in each year's Fiscal risks and sustainability report.
What to watch for
- UK — each autumn budget and spring statement, watch for changes to the Personal Allowance or the higher-rate threshold. Either an uprating or an extension of the freeze is a material event for take-home pay. Any unfreezing would be phased — historically the Treasury changes one band at a time, not all at once.
- US — Rev. Proc. announcements each October for the following tax year. The chained CPI-U reading for the 12 months ending August determines the percentage adjustment.
- Both — phase-outs and tapers often get indexed inconsistently with the main brackets. The UK £100,000 Personal Allowance taper is a famous example: it sits in a band that itself is not indexed.
TaxMetria updates the calculators when the underlying rates change and notes the change on the corrections page. Each release carries a version number so you can see what changed and when.