Number of UK top-rate taxpayers to exceed £1mn for first time

This year, the number of UK residents paying the highest rate of income tax will surpass £1 million for the first. The state’s finances are boosted by a freeze on thresholds and wage increases.

Due to the freezing of income tax thresholds, the number people who pay the 45 percent levy has more than doubled over the last three years. This is up from 520,000 people in 2021-22 – the year prior to the thresholds being frozen.

HM Revenue & Customs published figures on Thursday showing that the number of higher-rate taxpayers, who pay 40 percent tax on earnings between £50.271 and PS125.140, is expected to increase to 6.31mn by 2024-25. This compares to 4.43mn in 2020-21.

Laura Suter of investment platform AJ Bell’s personal finance director said that the frozen allowances have led to a “huge jump in tax revenue for the government”.

The government plans to freeze several allowances and thresholds in April 2022 rather than raise them with inflation.

This has led to an increase in tax revenue as more people are now paying taxes or being taxed at higher rates.

Labour has pledged not to raise income tax or national security if it wins next week’s general elections, while the Conservatives promised to abolish the main self-employed rate of national insurance during the next parliament.

The main parties have not said that they will reverse their freezes on the income tax thresholds. Both hope to continue expanding the tax base and offset some of the spending pledges in their manifestos.

Suter stated that tax receipts from earnings will reach £272.6bn by 2024-25, an increase of £16.3bn over the previous year.

Rachael Griff, tax and financial planner at wealth management firm Quilter, said that the figures exceeded the Office for Budget Responsibility’s (the fiscal watchdog) forecasts of 1.1mn extra rate taxpayers and 6.7mn higher rate taxpayers by the year 2027-28.

She added, “The fiscal drag effect has far exceeded any expectations that the government originally had. We will continue to see government coffers topped up in an exponential manner as more people are drawn into the system.”

HMRC anticipates that 37,4m people will pay income tax in 2024-25.

Tax authorities expect the number of people who pay the additional rate tax — which is levied on earnings over £125,140 — will reach 1.13mn by 2024-25. This compares to about 950,000 people in 2023-24. In April of last year, the government lowered its additional rate threshold. It went from £150,000 down to £125.140.

HMRC also predicted that more pensioners would become taxpayers this year due to a combination between frozen tax bands, and an increase in the value the state pension.

It said that in 2024-25 8.5mn people will have reached the state pension age, which is currently 66, and will rise to 67 by 2026. In 2021-22, 6.7mn people who were of pension age or older paid income tax.

Rishi Sunak, the Prime Minister of Pakistan, has pledged to defrost the personal allowances for pensioners if he is elected. This would mean that it will rise in the future in accordance with the “triple lock” pensions.

David Brooks is the head of Broadstone’s policy department. He said that the firm expected more pensioners to be taxed as the demographics of the country change due to an ageing population, and the pace at which the state pension has been increasing.

He added: “It’s confusing that pensioners who pay tax are necessarily seen as bad.”

HMRC’s data shows that the Bank of England has increased interest rates. The HMRC expects to collect £10.4bn as tax on interest earned in savings in 2024-25. This is up from £9.1bn collected in 2023-24, and significantly higher than the £1.4bn taken in 2021-22.