Income tax changes to drag almost 250,000 workers into top rate threshold

Charlotte Gifford 17 November 2022 9:17pm GMT Nearly a quarter of a million workers will be dragged into paying the 45p rate of income tax after Jeremy Hunt slashed the threshold at which it

is charged. The salary on which the additional rate is payable will be reduced from £150,000 to £125,140 effective next April, Chancellor Jeremy Hunt announced in the Autumn Statement, and

frozen until 2028, forcing 232,000 workers into paying the top rate of tax for the first time and costing these quarter of a million taxpayers £620 on average, according to wealth manager

Quilter. The number of workers paying 45pc has more than doubled since the rate was first introduced in 2010 – rising from 236,000 to 629,000 today – as wage inflation has pushed more

taxpayers into the highest income tax band. Lowering the threshold will cost the 629,000 workers earning over £150,000 who are already impacted by the 45pc tax an additional £1,250. A worker

on £140,000 will pay £750 as a result and a taxpayer earning £130,000 will pay an extra £250. Income and National Insurance Calculator Just two months ago, then-Chancellor Kwasi Kwarteng

promised that the top rate would be abolished altogether. But now the Government is hoping to earn £420m in 2023-24 by catching more taxpayers in the 45pc net, and almost double that – £855m

– in 2027-28. Neela Chauhan of accountancy firm UHY Hacker Young said the move was “a major attack” on higher earners. She added: “It’s going to bring in people into the upper rate who feel

that they are far from being rich.” Tax firm RSM said that there are also unexpected consequences of slashing the additional-rate threshold and the Chancellor had opened the door to a new

67.5pc tax rate. Taxpayers earning over £100,000 lose their personal allowance at a rate of £1 for every £2 of income. This means for every £100 they earn between £100,000 and £125,140, a

worker takes home just £40 – because £40 is lost to income tax and another £20 to the tapering of the personal allowance – creating a 60pc tax trap. Budget Tax Burden Chris Etherington of

RSM said lowering the threshold at which workers pay 45pc means some taxpayers will be hit by even charges. He said: “With the reduction in the threshold at which the 45% income tax is paid,

someone with income over £125,140 could pay an astonishingly high rate of tax if the personal allowance is increased in the future.  The chancellor has opened the door to a new 67.5pc tax

band as a result of the measures announced.” Anthony Whatling, of wealth manager Evelyn Partners, said there were some steps higher-rate taxpayers could take to protect themselves from the

effective tax rise. He said: “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.”