Ireland 
USA Millions drawn into higher income tax bands as allowance and thresholds frozen or cut
The Chancellor also announced a further increase in taxation on the highest earners by reducing the threshold at which the additional rate of 45% kicks in to £125,140 from the current £150,000.
The personal exempt allowance and higher rate threshold for income tax will be frozen up to and including the 2027/28 tax year, Chancellor Jeremy Hunt revealed today in his Autumn Statement, in a move that will raise billions for the Treasury.
The Chancellor also announced a further increase in taxation on the highest earners by reducing the threshold at which the additional rate of 45% kicks in to £125,140 from the current £150,000.
The move means that, for the next five years, anyone in England or Northern Ireland earning £12,571 to £50,270 will pay tax at 20% on income in that bracket. Over that earnings from £50,271 to £125,140 will be taxed at 40%, and anything above that at 45%, ignoring the effect of other income.
Anthony Whatling, Tax Partner at wealth manager and professional services firm Evelyn Partners, says the spread across the working population of higher rate tax is quite remarkable when put into recent perspective:
‘In 1990 only 1.7 million people paid 40% tax, with the figure rising to 2.1 million when Tony Blair came into power in 1997.[1] HMRC estimated the number of people being drawn into the higher rate band to have surged by nearly 44% since the 2019/20 tax year to 5.5 million this year.
‘At these rates of increase, and given that earnings are rising quite rapidly, it is probable that the number of people subject to 40% income tax will exceed 8 million under this prolonged freezing of allowances until 2028. That will be double the number of higher rate taxpayers when the initial freeze was announced by Sunak in 2021.[3]
‘The threshold at which the top rate of income tax is paid has been frozen at £150,000 since it was introduced in 2010. Initially it was paid by 236,000 workers but is now paid by 629,000 – and with the slashing of the threshold to £125,140 it has been estimated that number could now jump by another 246,000.
‘There is not a great deal most taxpayers can do about this. One route to mitigate exposure to higher and additional rate income tax is through making pension contributions, as these currently provide tax relief at the marginal rate. Those who have the option of contributing to their pension via salary sacrifice should certainly consider it as this system offers relief from National Insurance in addition to income tax.
‘Annual bonuses can also often be paid direct into pensions, affording relief from taxation. Likewise, other workplace schemes that allow products and services such as electric vehicles, bicycles and child care to be purchased out of gross pay will all go to help.’
NOTES
[1] National Statistics, Summary Statistics, GOV.UK
[2] Average weekly earnings in Great Britain, Office for National Statistics
[3] CEBR: March 2021, the number of workers paying higher rate tax was 4.1m. If threshold remains at £50,270 until 2028, a total of 8.3m will be paying the 40% rate.