Number of top rate taxpayers surges as frozen thresholds squeeze Brits
The number of higher and additional rate taxpayers in the UK has soared since the start of the decade as frozen thresholds have dragged nearly two million into paying higher rates of tax despite not being classified as traditional high-paid professionals.
According to the latest personal income statistics from HMRC covering the 2023/24 tax year, the number of higher-rate taxpayers increased by 654,000, a 12.8 per cent increase, to total 5.7m.
Meanwhile, the number of additional rate taxpayers also rocketed, surging nearly 57 per cent to 893,000.
HMRC acknowledged the rise is “likely to be due to the unchanged higher rate threshold and increases in income, largely from employment, resulting in more taxpayers being brought into the higher rate of tax.”
The level at which people start paying the higher rate of income tax of 40 per cent has been frozen at £50,271 since 2021/22.
High-paid professionals
Rachael Griffin, tax and financial planning expert at Quilter, acknowledged that while the period saw “fairly large increases in pay”, this was partly a result of pay rising to keep pace with inflation.
Griffin said: “When combined with frozen thresholds, it has left many taxpayers facing materially higher tax bills with little to no improvement in their standard of living.
“This shift is no longer confined to traditionally high‑paid professions. Experienced teachers, senior nurses and police officers are increasingly being pulled into higher‑rate tax through incremental pay rises, overtime or progression, rather than genuinely high earnings.
“What was once a marginal issue is now becoming a mainstream experience across large parts of the workforce.”
In April 2023, the threshold for the 45 per cent rate was slashed from £150,000 to £125,140, which also was responsible for dragging people into the top band.
As a result, one in five taxpayers now earn over £50,000, yet higher-rate taxpayers account for over 70 per cent of all income tax receipts, which Griffin argues shows “just how reliant government finances have become on pulling more people into higher tax bands”.
Pensioners feel the heat
Pensioners were also not immune during the period, with 8.1m taxpayers of pension age reported in the tax year, an increase of more than one million in a single year, meaning roughly 22 per cent of all taxpayers are now over state pension age.
While the pension-age demographic has grown, the numbers also reflect rising retirement incomes combined with frozen allowances “clearly playing a major role”.
She said: “The triple lock has been vital in protecting pensioner incomes during a period of high inflation, but its interaction with frozen personal allowances is creating unintended consequences.
“In practice, state pension increases designed to preserve living standards are increasingly being clawed back through tax, particularly where even modest private pension income is involved.”
Changing landscape
Despite thresholds being frozen until 2031, the tax landscape is changing, in particular for pensions.
From April 2029, salary sacrifice exemptions will capped at £2,000 per year, with the chancellor arguing that the current state of the system mainly benefits high earners, in particular “those in the financial services sector putting their bonuses into pensions tax-free”, while minimum-wage earners “don’t benefit at all”.
The raid is expected to raise an additional £4.7bn, with contributions above this level affecting both employer and employee national insurance contributions.
Griffin also noted that higher interest rates from savings tax have also boosted government coffers.
She said: “Taxable savings interest more than tripled as rates rose, catching millions of savers off guard.
“While rates have edged down and are unlikely to return to their recent peaks, the episode has reinforced the importance of using ISAs to shelter savings from income tax.
For those with a longer‑term horizon, it may also prompt a rethink about relying too heavily on cash returns that may already be past their high point.”