Earning £40,000? You could be paying higher rate tax by 2030, experts have warned. New figures reveal that more than three million people were dragged into a higher tax bracket in a single year under the Labour government’s stealth tax plans. By the end of this decade, large numbers of “middle earners” will be paying the higher income tax rate.
The 40p rate currently applies to anyone earning £50,270 or more. However, with inflation and wage growth, those earning £40,000 today could be liable within a few years if their income rises at the same rate.
Expert Analysis
David Little of Evelyn Partners explained: “In real terms, everyday middle earners will be higher rate taxpayers by 2030, as opposed to a decade or two ago when this band was confined to ‘high earners’. Anyone considered a ‘high earner’ in real terms will by 2030 be in or staring at the top rate of tax, a charge once reserved for the very highest paid elite.”
Maike Currie, vice-president of personal finance at PensionBee, said: “Freezing thresholds until the 2030/31 tax year is the biggest stealth tax in the system – quietly pulling teachers, nurses and mid-level professionals into the 40% tax bracket. 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.”
Managing Your Tax
Currie added: “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.”
A Treasury spokesman 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. We are keeping our promise not to raise the basic, higher or additional rates of income tax, employee national insurance or VAT.”
