1 Million Top Rate Taxpayers Expected as Threshold Freeze Continues
According to official figures, income tax revenue is projected to increase by a third over three years as tax thresholds remain frozen.
The number of UK taxpayers subject to the highest income tax rate is anticipated to hit 1 million for the first time due to a rise in individuals falling into this category amidst ongoing threshold stagnation.
HM Revenue and Customs (HMRC) data reveals a significant surge in the total number of taxpayers over the past three years.
The freeze on thresholds, which commenced in April 2021, is set to persist for another three years, enabling HMRC to increase tax revenue without adjusting tax rates. None of the political parties have indicated plans to reverse this policy in their campaign promises.
HMRC estimates suggest that the number of taxpayers subject to the “additional rate” of 45 percent will reach 1.13 million in 2024/25, up from 950,000 the previous year and more than double the 520,000 in 2021/22.
This group is expected to pay around £124 billion in taxes this year, a 53 percent increase from the £80.8 billion paid in 2021/22.
The total number of income tax payers has seen a sharp increase from nearly 33 million in 2021/22 to over 36.2 million in 2023/24.
Related Stories
The total number is expected to hit 37.4 million this year, a 13.5 percent increase since the freeze on tax thresholds began, resulting in a 33 percent rise in annual income tax revenue according to HMRC projections.
Population growth may have also contributed to this increase, although Office for National Statistics estimates suggest only a 2.2 percent growth in the workforce since early 2021.
Additionally, the number of pensioners paying income taxes is projected to rise by more than a quarter, from 6.74 million in 2021/22 to 8.51 million in 2024/25.
The freeze on thresholds, where tax thresholds do not rise with inflation, will continue until 2027/28, pulling more individuals into the higher tax bracket.
Despite assurances from both major parties not to increase headline tax rates following the general election on July 4, neither has addressed unfreezing personal tax allowances and thresholds, amounting to £10 billion annually according to Paul Johnson, director of the Institute for Fiscal Studies.
Top 10 Percent Pay Most Taxes
With the UK’s tax burden at its highest level in over 70 years, Chancellor Jeremy Hunt stated earlier this year that the average UK earner has the lowest effective personal tax rate in nearly 50 years.
Regarding income taxes, top earners continue to contribute the majority of taxes while the bottom half pays less. This trend is expected to persist based on HMRC forecasts.
In 2024/25, the top 1 percentile is projected to earn 13.3 percent of total income while paying 28.2 percent of income taxes.
The top 10 percentile is expected to earn 35.1 percent of total income and pay 60.2 percent of income taxes.
The bottom 50 percentile is anticipated to earn 24.2 percent of total income while paying 9.5 percent of income taxes.
