The number of higher-rate income taxpayers in the UK is set to exceed 7 million this tax year, according to HM Revenue and Customs (HMRC). This represents an increase of 500,000 from the previous year and nearly 2 million since 2019-20, when the threshold freeze was first announced.
The freeze on income tax thresholds, introduced by then-chancellor Rishi Sunak in 2021 and extended until 2028 by Jeremy Hunt, has caused 'fiscal drag'. As wages and pensions rise with inflation, more people are pulled into higher tax brackets. In 2021-22, 4.4 million people paid the 40% rate; now the figure is expected to reach over 7 million for 2025-26.
The personal allowance – the amount earned before any tax is due – remains at £12,570. Meanwhile, the full new state pension is £11,973 a year, meaning nearly all pensioners are now liable for income tax. HMRC forecasts 8.7 million state pension age taxpayers in 2025-26, an increase of almost 2 million since the thresholds were frozen.
Laura Suter, director of personal finance at AJ Bell, said: 'Everyone is caught by frozen tax thresholds, including pensioners... However, it is those who drift into higher tax bands as a consequence who feel the most pain.' She noted that once earnings exceed £50,270, each additional pound is taxed at 40%, significantly reducing pay rises.
A government spokesperson said: 'This government inherited the previous government’s policy of frozen tax thresholds. At the budget and the spring statement, the chancellor, Rachel Reeves, announced that she would not extend that freeze. We are also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of income tax, employee national insurance or VAT.'
