HMRC has confirmed that two million more households have been moved into the higher rate tax band, with official figures revealing a sharp increase in the number of individuals paying 40% income tax. Data from HMRC and the Labour Party shows that 5.76 million individuals were paying the higher rate in the 2023/24 tax year, a 50% rise from 3.83 million in 2019/20. Between 2022/23 and 2023/24 alone, 654,000 people were added to the higher-rate band, a year-on-year jump of 13%.
Frozen thresholds driving tax band creep
HMRC attributed the rise to the unchanged higher rate threshold, which has been frozen at £50,271 since 2021/22, combined with increases in income, largely from employment. The personal allowance has also remained frozen at £12,570 since 2021/22, meaning more income is taxed at the basic rate and more individuals are brought into paying income tax overall.
A Treasury spokesperson said: “More people are paying higher rates of tax because thresholds have been frozen while wages rise – a policy we inherited. 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.”
Stealth tax impact on middle earners
Maike Currie, vice-president of personal finance at PensionBee, described the frozen thresholds as “the biggest stealth tax in the system – quietly pulling teachers, nurses and mid-level professionals into the 40% tax bracket.” She noted that since the higher-rate threshold was frozen, inflation and wage growth have done the heavy lifting for the Treasury. “The tax system hasn’t become more complicated overnight, but it has become less forgiving. Small income changes can disproportionately affect your take-home pay, making planning essential. Pensions, Isas and salary sacrifice are vital tools for managing tax and avoiding a drift into higher bands – for many, these will be the difference between drifting into a higher tax bracket and consciously deciding how and when income is taxed.”
Pensioners and higher earners hit hard
Sarah Coles, head of personal finance at AJ Bell, highlighted the broader impact: “Almost eight million people relying on their pension for their main source of income are handing over £24 billion in tax every year – nearly half a million of whom are paying higher-rate tax. Meanwhile, higher earners are shouldering an incredibly hefty tax burden, with higher and additional-rate taxpayers handing over almost 70% of all tax between them. Frozen tax thresholds mean this is only going to get worse for everyone. In this environment, it’s vital to make plans to ensure you don’t pay more than your fair share of tax.”
