Number of Higher-Rate Taxpayers Surges to 7.7 Million
New HMRC data shows that 7.7 million people will fall into the higher-rate tax bracket during the 2026/27 tax year, marking a dramatic increase from 4.43 million just five years earlier in 2021/22. This represents an increase of approximately 3.27 million people, equivalent to a 74% rise over the period, according to HMRC figures.
Fiscal Drag Blamed for Rise
Marianna Hunt, personal finance expert at Fidelity International, commented: "Higher-rate taxpayers are no longer a small group of top earners. Because of frozen tax thresholds, millions of workers bringing home what probably feels like a relatively normal income are now paying rates of tax that would once have been reserved for much higher earners."
Fiscal drag occurs when tax thresholds and allowances do not rise in line with inflation or wage growth. While workers may appear to earn more on paper, fixed thresholds mean more of that income becomes taxable, potentially pushing individuals into a higher tax band even if they do not feel richer in real terms.
Government Freeze Extended to 2031
The UK government has chosen to freeze tax thresholds for several years. Initially set to last until April 2028, the freeze has been extended to April 2031. Changes to thresholds are usually confirmed in the budget and rolled out in future tax years.
Freezing thresholds increases the amount of tax collected without changing the tax rates themselves. So, while income might rise, a larger slice is taken in tax.
Expert Advice for New Higher-Rate Taxpayers
Hunt advised: "If you've only recently become a higher-rate taxpayer, increasing your pension contributions could bring some of your income back below the higher-rate threshold." This strategy can help mitigate the impact of fiscal drag by reducing taxable income.
The government sets tax thresholds based on a combination of economic, social, and political factors. Indexation, where thresholds are adjusted in line with inflation or wage growth, is sometimes used, but the UK has opted for a prolonged freeze.
