New figures from the OECD reveal that HMRC's ongoing freeze on income tax bands has pushed nearly two million more UK households into higher tax brackets. The number of additional rate taxpayers, those earning £125,140 or more, increased by 324,000 between 2022 and 2024, while higher rate taxpayers, earning £50,270 and above, rose by 654,000. Meanwhile, the number of basic rate 20% taxpayers earning £12,570 or more grew by 1.15 million.
Fiscal Drag Blamed for Surging Tax Burden
David Little, a partner in financial planning at wealth management firm Evelyn Partners, attributed the trend to "fiscal drag," which he says is "sweeping millions into higher tax brackets." He noted that both the number of taxpayers in each band and the amount of income tax paid to the Treasury are surging annually, exactly as Chancellors past and present have intended. The data covers tax years under the Conservatives' threshold freeze and Jeremy Hunt's reduction of the top rate from £150,000. Current Chancellor Rachel Reeves has extended the freeze until at least 2031.
Impact on Middle Earners
Little warned that by 2030, the Office for Budget Responsibility expects a quarter of all taxpayers to be paying higher and additional rates, compared to 15% in 2021. "In real terms, everyday middle earners will be higher rate taxpayers by 2030, as opposed to the situation a decade or two ago when this band was confined to individuals regarded as ‘high earners’," he said. He added that those considered high earners in real terms will by then be in or approaching the top rate, which used to be reserved for the highest paid elite.
Advice to Avoid Higher Tax Bills
To mitigate the impact, Little recommends increasing pension contributions, particularly through salary sacrifice schemes. "Salary sacrifice pension schemes are particularly effective in this respect as not only do they offer additional relief from National Insurance, but also could prevent the saver stepping up into a higher tax bracket," he explained. However, he noted that such schemes are due to be limited from April 2029, urging workers to take advantage while possible. HMRC acknowledged the rise is "likely to be due to the unchanged higher rate threshold and increases in income, largely from employment."
