The number of people paying higher rate income tax has increased by nearly two million since the last election, according to new data published by HMRC.
The number of higher rate taxpayers was 4.251 million in 2019–20 but by 2022–23, it had increased to 6.139 million, a gain of 1.888 million.
These figures take into account people who pay at either the “extra” 45 percent rate or the “upper” 40 percent rate. In three years, the number of people paying a 45 percent rate increased from 421,000 to 629,000.
Additionally, over the course of this Parliament, the number of higher rate taxpayers is expected to skyrocket. This is due to the fact that the Chancellor has frozen the higher rate tax starting point until 2025–2026 at a time when salaries and pensions are anticipated to climb quickly.
According to projections by consulting firm LCP, the overall number of higher rate taxpayers could rise by more than 3 million during the course of this Parliament. In 2024–2025, this would bring the total to above 7 million. This would raise the proportion of higher rate taxpayers throughout the entire Parliament by almost 70 per cent and represent around 1 in 5 of all taxpayers.
In recent years, there has been a significant increase in the number of higher rate taxpayers, including those who pay at the “extra” 45 per cent rate. In comparison to an expected 6.1 million in 2022–2023, there were roughly 3.2 million higher rate taxpayers in 2009–2010.
LCP partner Steve Webb says: “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 per cent and around 1 in 5 of all taxpayers will soon be in the higher rate bracket”.