Nearly two million more people in the United Kingdom have been pulled into the higher-rate income tax band since the start of the decade, according to new data. The number of higher-rate taxpayers surged to 5.76 million in the 2023/24 tax year, a 50 per cent increase from 3.83 million in 2019/20.
Frozen Thresholds Fuel Fiscal Drag
The sharp rise is largely attributed to the government's decision to freeze the higher-rate tax threshold at £50,271 since the 2021/22 tax year. While incomes have continued to grow, the threshold has remained static, pushing more earners into the higher bracket through a phenomenon known as 'fiscal drag'.
The government has extended the freeze on tax thresholds, including the personal allowance and the higher-rate limit, until 2030/31. This policy is expected to draw even more taxpayers into higher bands in the coming years.
Impact on Tax Revenue
Higher-rate taxpayers now account for 15.7 per cent of all UK taxpayers but contribute a disproportionately large share of income tax revenue. They are responsible for 32 per cent of the total income tax collected by the government, highlighting the significant fiscal impact of this group.
Experts have labelled the frozen thresholds as a 'stealth tax', as it effectively increases the tax burden without a formal rate rise. Individuals are advised to utilise financial planning tools such as pensions and Individual Savings Accounts (ISAs) to manage their tax liabilities effectively.
The trend shows no sign of abating, with projections indicating that millions more could be affected as the freeze continues. The data underscores the growing tax burden on middle-income earners in the UK.
