More people are paying higher rate tax in the UK – and that’s official, according to the latest statistics.
Despite tax rates falling as successive Chancellors of the Exchequer cut the basic rate of income tax, hundreds of thousands of people are paying more income tax because they are caught in the higher rate net.
In 2015-16, the number of higher rate (40%) and additional rate (45%) taxpayers hit a peak of 4.9 million people.
This will drop to 4.7 million in the 2018-19 tax year.
But the figures from HM Revenue & Customs show that only 3.02 million people were caught in the higher rate threshold – an increase of 39% in less than a decade.
Government tax pledge
Meanwhile, although the higher rate threshold has increased, more people are earning higher incomes despite the economic effects of Brexit holding wages down.
The decrease in numbers is directly related to changes in the higher rate threshold, which was increased to £43,000 a year in 2016-17 and rose again to £45,000 in 2017-18.
The Tory government has pledged to set the threshold to £50,000 by 2020, which should see another drop in the number of higher rate taxpayers.
In 2010, when the Tories came to power, the threshold was £41,865. Then Chancellor George Osbourne introduced the 45% additional rate band in that year for taxpayers earning more than £150,000, netting 236,000 taxpayers.
For the 2018-19 tax year, 393,000 people will pay their income tax at this rate – another rise of 39%.
Landlords fear tax rise
HMRC forecasts that income tax will raise £185 billion in 2018-19, an increase of £7 billion from 2015-16 despite basic tax rates falling and the higher rate threshold rising.
The top 10% of taxpayers pay around 60% of income tax.
Around 25.6 million people pay tax at the basic rate out of a total of 31 million taxpayers. The number has fallen by just 400,000 since 2009-10.
Hundreds of thousands of buy-to-let landlords fear they will pay higher rate tax from 2018-19 onwards due to changes in the way they calculate their tax and a reduction in mortgage interest relief that is phasing in.
