HomeDaily updateAdditional rate taxpayers up 3.5 times since launch

Additional rate taxpayers up 3.5 times since launch

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There were 862,000 additional rate taxpayers last year – more than three and a half times as many as the year the rate was introduced.

The additional rate of tax hit 240,000 people when it was first introduced in April 2010.

It was set at £150,000 in April 2010 and if it had risen with wage inflation since, it would now be set at £224,101. However, it was cut to £125,140 in April last year.

There was a 142% increase in the number of additional rate tax payers after the tax bands were frozen in 2021, according to HMRC figures published last year. 

The numbers paying the top (45%) ‘additional’ rate soared from 555,000 to 862,000 in the 2023-24 tax year.

A failure to keep up with wage inflation, followed by the threshold cut, meant last year’s cut made a significant difference – doubling the number of additional rate income taxpayers in three years.

Additional rate taxpayers also lose their personal savings allowance, and pay a higher rate of tax on savings and dividends.

Sarah Coles, head of personal finance, Hargreaves Lansdown said: “For hundreds of thousands of people dragged into the 45p rate, the impact is pretty nasty. Fortunately, there are some steps people can take to cut the amount of additional rate tax they pay.”

In some cases, taking steps such sacrificing salary into a pension or sacrificing a bonus, will push people out of the additional rate tax bracket altogether.

Ms Coles said: “If you pay additional rate tax, then on your last £1 of earnings you’ll face income tax at 45% plus national insurance at 2%, so you’ll take home 53p. If you sacrifice it into your pension instead, you’ll get the full £1.”

Sacrificing your bonus works in a similar way but anyone bringing their income down below the threshold in this way will also pay tax at a lower rate on savings and dividends.

Other steps include carrying forward any unused pension contributions or deferring income, she said.


 



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