Government creates nearly two million new higher rate taxpayers in three years – Steve Webb, LCP

by | Jun 30, 2022

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New figures published this morning by HMRC show that the number of people paying higher rate income tax has risen by nearly two million since the last Election. 

In 2019/20 (the first year of this Parliament) the number of higher rate taxpayers was 4.251 million but by 2022/23 the number had risen to 6.139 million, an increase of 1.888 million.

These figures include those paying at the ‘higher’ 40% rate or the ‘additional’ 45% rate.  The number paying at 45% rate has risen in three years from 421,000 to 629,000.

On top of this, the number of higher rate taxpayers is set to soar over the remainder of this Parliament.  This is because the Chancellor has frozen the starting point for higher rate tax until 2025/26 at a time when wages and pensions are expected to increase rapidly.

 
 

Estimates from consultancy LCP suggest that the total number of higher rate taxpayers could increase by more than 3m over the whole of this Parliament. This would take the total to over 7m in 2024/25.  This represents roughly 1 in 5 of all taxpayers, and would represent an increase of around 70% in the number of higher rate taxpayers over the Parliament as a whole.

The number of higher rate taxpayers (including those paying at the ‘additional’ 45% rate), has risen substantially in recent years.  In 2009/10 there were around 3.2m higher rate taxpayer compared with an estimated 6.1m in 2022/23.

 
 

Commenting, Steve Webb, partner at LCP said: “Paying higher rate tax used to be reserved for the very wealthiest, but this has changed very dramatically in recent years.  The starting point for higher rate tax has not kept pace with rising incomes, and the current five-year freeze on thresholds has turbo-charged this trend.  People who would not think of themselves as being particularly rich can now easily face an income tax rate of 40% and around 1 in 5 of all taxpayers will soon be in the higher rate bracket”.

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