Latest news with #higherRateTax
The Independent
8 hours ago
- Business
- The Independent
More than seven million people estimated to be higher rate taxpayers in 2025-26
More than seven million people are liable for higher rate income tax, marking a jump of nearly two-fifths compared with 2022-23, according to HM Revenue and Customs (HMRC) figures. There are a projected 7.08 million higher rate income tax payers in tax year 2025-26, the revenue body said. This is up from 5.10 million people who were in this bracket in 2022-23. It also marks a 2.65 million increase compared with the 4.43 million higher rate income tax payers in 2021-22. There are also a projected 1.23 million additional rate income tax payers in 2025-26, compared with around 570,000 in 2022-23 and 520,000 in 2021-22. Some 39.10 million people are projected to be income tax payers in 2025-26, up from 34.50 million income tax payers in tax year 2022-23 and 33.00 million in 2021-22. Frozen tax thresholds have pushed people into higher brackets as their pay has increased. Sarah Coles, head of personal finance, Hargreaves Lansdown said: 'Fiscal drag has hauled over six million more people into paying income tax, and 3.36 million more into paying higher or additional rate tax. 'We've had to hand over an extra £89 billion in income tax this year – compared to 2021-22 – as a result. 'It has had a devastating impact on the tax we pay on our earnings, but that's not the end of it, because it also takes a huge chunk out of our savings and investments. It reveals just how much damage is being done to our finances by this horrible stealth tax – and there's plenty more to come. 'Income tax thresholds are set to stay until 2028, but as the debate around the Government finances intensifies, the risk that the freeze remains for even longer can't be ruled out.' Neela Chauhan, a partner at UHY Hacker Young said: 'Though it might seem equitable for higher earners to be paying more tax, there are real concerns over the impacts of placing an ever higher tax burden on high earners.'
Daily Mail
05-06-2025
- Business
- Daily Mail
Four ways the Chancellor shifted financial habits of the middle-classes in under a year, by LEE BOYCE
How much more can we be taxed? That's been a common conversation I've had with friends, family and colleagues not just since Labour have been in power, but since the pandemic. I'd hazard a guess it's been a hot topic in your circles too – ranging from stories of people uprooting to move to more tax-friendly countries, like Dubai and Portugal, to bemoaning the rising cost of everything in Britain. The tax rot began in my view, when the previous Tory government froze income tax thresholds, creating fiscal drag of epic proportions. Millions more will be dragged into the higher tax rate net in the rest of the decade for earning more than £50,720 – if it went up by inflation, the 40 per cent tax band should be more like £75,500. It's no longer an outlier to be a higher-rate taxpayer, but feels like its shifting more towards the norm, and it's hard for the Government to wean itself off the money it brings in. Add to that rising council tax, water bill hikes that have been eye-watering, increasing train prices… the list goes on and on, and I feel more than ever, hard-working Britons are fed-up. Many are at boiling point once they calculate how much of their monthly salary is hoovered up by tax and these rising, unavoidable, bills. And the Chancellor has added her own special ingredients into the mix, such as NI hikes for employers, farm inheritance tax changes, culling the winter fuel allowance and sticking with those frozen tax bands, with plenty of other examples below. For the middle-classes, it has resulted in changes to their financial behaviour in the past year, as they look to shield themselves from a larger and larger tax grab, from Isas to sidestepping a future inheritance tax burden… 1. Stuffing cash into Isas A few months ago, when it was rumoured Rachel Reeves was considering chopping the £20,000 annual allowance for cash Isas to £4,000, the first thing that sprang to mind was… if she didn't say this wasn't happening, more Britons would see the 2025/26 tax year as a last chance to stuff their tax-free accounts with cash. Last month, she said she wouldn't cut the £20,000 overall Isa limit, but didn't say the cash element was off limits. This lack of commitment has essentially resulted in far more money heading into cash Isas, as people see it is as a last chance opportunity to stick £20,000 into tax-free savings, rather than invest it. If the cash allowance was cut to £4,000, it would take five years to be able to fill the same amount. Isas are crucial to higher and additional-rate taxpayers, as they keep their savings interest tax-free. Lo-and-behold, a humongous £14billion was placed in cash Isas in April, the highest figure for any month since Isas were introduced in 1999, according to the Bank of England. It's likely a big chunk of that has been diverted away from stocks and shares – the very product Reeves is looking for Britons to turn to. 2. Sidestepping future inheritance tax One of the big Budget moves was to announce pensions would no longer be exempt from inheritance tax calculations. It is likely that roughly 10 per cent of estates will be hit with IHT when the move takes place in 2027 – up from 4 per cent today. I'd expect that figure to grow higher still in the 2030s. The Treasury is now predicted to rake in a total of £66.9billion between 2024 and the end of the decade, when the annual inheritance tax take will hit £14.3billion. What this has done has put IHT into even sharper focus and it's likely many more savvy Britons are already planning to avoid a future tax sting for their descendants. We're not talking ultra-wealthy here. We're talking hard working people who own a home and have saved diligently for their retirement. The IHT plans include using the maximum tax-free gifting of £3,000 a year to children, grandchildren and relatives, and then going above that to try to benefit from the seven-year rule for giving more away. It is also clear that interest around gifting surplus income has gained plenty of traction this year, if our traffic statistics are anything to go by. This week, we had a story on a 59-year-old who is gifting his two daughters a monthly income from his self-invested personal pension – and you can read how to successfully do it without penalty (AKA, keep good records). 3. Moving pensions into Isas When This is Money senior reporter Angharad Carrick wrote an article titled: Could you fall into the pension inheritance tax trap? We reveal how four families could face huge bills, there was a flurry of reader comments below stating they were busy emptying their pensions into Isas. It's a good bellwether to see what's happening in the world of personal finance. Trust me when I say… us journalists and editors take note of what you're saying in those comment sections. The jury is out whether this is a good move – indeed Ian Cook, chartered financial planner at Quilter Cheviot, warns emptying a pension into an Isa to dodge inheritance tax could backfire. Nevertheless, it's clear that some people are choosing to take this road, all thanks to a changing of goalposts when it comes to IHT and pensions. Some people unfortunately feel the need to act and potentially rush into quick decisions. 4. Earning £100,000 is a burden There is a feeling among those working their way up the earnings ladder that tipping above an annual salary above £100,000 is a financial own goal. Some reader comments on our recent stories on six-figure earners state earning £100,000 doesn't make you wealthy. A large reason for this is the fact a 60 per cent income tax rate effectively comes in for those earning between £100,000 and £125,140. This is thanks to a move in April 2009. Against a backdrop of emergency financial crisis measures, Chancellor Alistair Darling announced the personal allowance would start to be removed at a rate of £1 for every £2 earned above £100,000. It wasn't fixed by the Conservatives, it hasn't been fixed by the current Chancellor and hard-working people are starting to wonder if it is worth tipping over this salary level, hitting productivity and willingness to push careers to the limit. With an enhanced childcare programme now available to those who earn under £100,000 with savings of potentially £8,000 per year, you can see the dilemma. Sure, a nice dilemma – but a dilemma for being successful in a chosen career path nonetheless. What would you add to the list? Let us know in the comments section below or email: editor@
The Independent
20-05-2025
- Business
- The Independent
Millions of pensioners ‘dragged' into paying higher tax rates
A surge in the number of pensioners paying higher tax rates has been revealed, with new figures showing an increase in tax liabilities for those over state pension age. Around one million pensioners are now paying income tax at the higher 40 per cent rate or above, according to data obtained from HM Revenue and Customs (HMRC). This represents a large increase from just four years ago. The total number of pensioners paying any income tax has risen by approximately two million between 2021-22 and 2025-26, jumping from 6.7 million to 8.8 million, according to the figures obtained through a Freedom of Information request by former pensions minister, Sir Steve Webb. Meanwhile, in the same timeframe, the number of pensioners paying the higher rate has doubled. The number of pensioners paying tax at 40 per cent or above has soared from around 494,000 in 2021-22 to approximately 1,028,000 this year. This includes those paying at the higher or additional rate (45 per cent). Sir Steve Webb, now a partner at pension consultants LCP (Lane Clark & Peacock), points to several contributing factors behind this substantial rise. He highlights the freeze on income tax thresholds, coupled with significant increases in the state pension and other inflation-linked pensions, as key drivers pushing more pensioners into higher tax brackets. He also highlighted how being a higher rate taxpayer can mean more tax to be paid on other forms of income. For example, basic rate taxpayers can receive up to £1,000 of interest on savings and not have to pay tax on it, under the annual personal savings allowance, while higher rate taxpayers have a £500 allowance, and for additional rate taxpayers the personal savings allowance is zero. Sir Steve said that moving up an income tax bracket could also have implications for the amount of capital gains tax some people need to pay. Looking ahead, Sir Steve said the number of pensioners paying higher rates of tax is poised to increase further as personal allowances and tax thresholds remain frozen. But he said the rate of increase is likely to be slower than in recent years, as state pension age will be gradually rising from 66 to 67 between 2026 and 2028. Steve Webb, partner at pension consultants LCP, said: 'There has been a significant increase in the number of pensioners paying income tax at all rates, but the rise has been greatest in the numbers paying income tax at the higher rates. 'This has more than doubled from under half a million four years ago to over a million now. Not only does this mean more tax on things like income from state and company pensions, it also means these pensioners are paying more tax on their savings, as their personal savings allowance is cut, and a higher rate of capital gains tax – a 'triple whammy'. 'The higher rate threshold has become a real cliff-edge over which growing numbers of pensioners are falling.' Charlene Young, senior pensions and savings expert at AJ Bell, commented: 'The nation has fallen victim to the effects of fiscal drag in recent years. Frozen allowances and tax thresholds have pulled more people into the tax system for the first time and hiked the rates of tax people pay as their income rises and they breach a new tax band. 'The government is in a straitjacket thanks to its own fiscal rules, and these figures will bolster the arguments of those calling for state pension reform. The full 'new' state pension is close to breaching the tax-free personal allowance, and many pensioners already receive well above this thanks to the way benefits could be built up under the old system.
