Nearly 900,000 households have been moved into a new tax bracket by HMRC, resulting in significantly higher tax bills. The number of workers paying the top rate of tax has soared over the past year, reaching a staggering 900,000.
Sharp Increase in Additional-Rate Taxpayers
The number of additional-rate taxpayers, who pay the 45 percent rate, increased by 57 percent after Labour Party Chancellor Rachel Reeves confirmed that tax bands would remain frozen. Data shows that taxpayers in this bracket jumped from 570,000 in 2022-23 to 893,000 in 2023-24.
Rachael Griffin, a wealth manager at Quilter, commented: “This shift is no longer confined to traditionally high-paid professions. Experienced teachers, senior nurses and police officers are increasingly being pulled into higher-rate tax through incremental pay rises, overtime or progression, rather than genuinely high earnings.”
Threshold Lowered and Frozen
The 45 percent threshold was lowered from £150,000 to £125,140 from April 6, 2023, as part of a rule change, meaning more households are being affected. Additionally, tax thresholds have been frozen until 2031, exacerbating the impact of fiscal drag.
Sarah Coles, of stockbroker AJ Bell, said: “The tax bill for pensioners is only going to increase. By the time this data was collected, tax thresholds hadn’t moved for three years, so annual rises in some pension incomes pushed more people into tax-paying territory. These thresholds are going to stay put until 2031, by which time they will have done even more damage.”
Government Response
A Treasury spokesman stated: “More people are paying higher rates of tax because thresholds have been frozen while wages rise - a policy we inherited.” The basic rate of tax remains unchanged, but due to fiscal drag, more individuals are seeing their wages edge closer to the next higher bracket.
HM Treasury added: “At the last Budget we acted to ease pressures on working people by increasing the national minimum wage, taking £150 off energy bills, and freezing prescription charges, fuel duty and rail fares. And we are keeping our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance or VAT.”
