More people falling into the higher rate taxpayer category
- 18th May 2022
Higher rate taxpayer numbers are rising sharply, and if that’s you, then professional advice is now more vital than ever before
There was once a time when paying tax at more than the basic rate made you a member of a somewhat exclusive club. Back in 2010/11, the first year in which additional rate tax came into force, the number of taxpayers who were taxed at more than the basic rate was just 10.4%. Five years on, a dose of austerity pushed that figure close to 16%. As higher rate thresholds were raised, this figure began to drop, so that by 2019/20 it was down to 13.6%. From that low, the upward path was resumed.
Alongside the Chancellor’s Spring Statement in March, the Office for Budget Responsibility (OBR) announced estimates that the freeze in the personal allowance and, outside Scotland, basic rate bands through to 2025/26 will mean by that year almost 19% of taxpayers will be liable for higher rate tax. The number of taxpayers will also increase because of the personal allowance which remains at £12,570. The rising taxpayer numbers explain why the Chancellor could announce a 1p cut in basic rate tax in 2024/25 at the same time that the OBR calculated that income tax revenue for the year would increase by £12 billion. Scotland already has a starter rate of 19%.
If your head is spinning from all the numbers, there is a simple message here: you are likely to pass more of your income to HMRC in the coming years. To limit just how much extra the Exchequer gains and you lose, there are plenty of actions that you can consider wherever you are in the UK:
- If you are married or in a civil partnership, make sure you are maximising the benefits of independent tax and, if you are eligible, claiming the transferable marriage allowance.
- Check your PAYE code – it could be incorrect.
- Ensure you are claiming full tax relief on pension contributions you make. Do not assume you will receive this automatically, especially if you pay higher rate tax.
- Consider an ISA first for any investment as it is free from UK income tax and capital gains tax.
- Choose employee perks carefully. Some are very tax efficient, whilst others carry a heavy tax burden.
Do remember, if you’re likely to become a member of the ever-expanding higher rate taxpayer club, the value of financial advice rises with your tax rate.
Do talk to us should you want financial advice about managing your wealth and minimising your tax burden.
Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.