The UK's higher rate taxpayers are projected to rise by 500,000 this tax year, surpassing 7 million due to frozen income tax thresholds since 2021. This freeze, extended until 2028, has led to a fiscal drag effect where wage increases push more individuals into higher tax brackets. Notably, 8.7 million state pensioners are forecasted to pay income tax by 2025-26, with many pensioners affected. Laura Suter, a personal finance director, highlighted the burden on those transitioning into higher tax bands, illustrating the impact of stagnant thresholds amidst rising inflation.
According to official figures, the number of people in the UK paying the higher rate of income tax is expected to increase by 500,000 this tax year.
The freeze on tax thresholds has resulted in many individuals moving into higher tax brackets, a phenomenon known as fiscal drag.
Laura Suter emphasized that everyone is affected by frozen tax thresholds, particularly those who move into higher tax bands due to wage increases.
Thresholds differ in Scotland, but in the rest of the UK, earnings above £50,270 face a 40% tax rate, significantly reducing salary increases.
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