UK income taxpayers rise as frozen thresholds widen higher-rate bands

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UK income taxpayers rise

Highlights

HMRC projects higher-rate taxpayers will reach 7.7 million this tax year, up from 7.29 million last year and nearly 2 million above 2023-24 levels.
The number of additional-rate taxpayers is expected to rise to 1.29 million in 2024-25 from 1.22 million last year, driven by threshold freezes and earnings growth.
The top 50% of income taxpayers received £1.15 trillion of £1.53 trillion total income in 2023-24 and paid £247 billion of the £274 billion total income tax.

HMRC projections show continued fiscal drag

As reported by Financial Times, citing HM Revenue & Customs, the number of higher-rate taxpayers, those earning more than £50,271 and paying a 40p marginal rate, is expected to reach 7.7 million in the current tax year, up from 7.29 million in the previous year and nearly 2 million above 2023-24 levels.

The number of additional-rate taxpayers, who earn more than £125,140 and pay the 45p rate, is projected to rise to 1.29 million this year from 1.22 million a year earlier and 893,000 in 2023-24, when the threshold was cut from £150,000. HMRC says the increase is largely driven by the freeze in thresholds until 2030-31 and earnings growth at the middle and upper end of the income distribution.

The data for the UK also points to a more moderate increase in basic-rate taxpayers, with 31.8 million people expected to pay the 20p rate this tax year, 500,000 more than in the previous financial year and 1.7 million more than in 2023-24. Scotland sets some of its own income tax rates.

Tax burden shifts further onto higher earners

Overall, about 40.8 million taxpayers are expected across the UK this financial year, 4 million more than three years ago. Current government plans indicate the threshold freeze ends in the 2030s, but tax experts expect millions more people to be pulled into higher bands before then.

Shaun Moore, a tax and financial planning expert at Quilter, says fiscal drag has become a regular way for the Treasury to raise revenue without formally announcing a tax increase. Laura Suter, director of personal finance at AJ Bell, says the trend affects almost everyone who pays income tax, though the biggest impact falls on those pushed into a higher band.

Suter also notes that the only group showing a consistent decline is savers with no taxable earnings but taxable savings or dividends, as more people are drawn into the wider tax system. HMRC's figures also highlight the concentration of tax payments among higher earners, with the top 50 per cent of income taxpayers receiving £1.15 trillion of £1.53 trillion in total income in 2023-24, while being liable for £247 billion of the £274 billion total income tax take.

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