Number of taxpayers at the UK's highest tax rate exceeds 1 million for the first time

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The number of people paying top-rate income tax in the UK is expected to exceed 1 million for the first time this year, as the threshold freeze and wage inflation stretch the UK's budget.

The income tax threshold freeze means the number of people paying 45% tax on their income has more than doubled over the past three years, from 520,000 in 2021-22 (the year before the threshold was frozen).

The number of high-rate taxpayers – those paying 40 per cent tax on income between £50,271 and £125,140 – is expected to rise from 4.43 million in 2021 to 6.31 million in 2024-25, according to figures released by HM Revenue & Customs on Thursday. -22.

Laura Souter, personal finance director at investment platform AJ Bell, said the frozen deductions had led to a huge increase in government tax collections.

From April 2022, the government has frozen several deductions and tax caps without raising them for inflation, and plans to keep them unchanged until April 2028.

These measures have increased tax revenues by forcing more workers with higher wages into the tax system or subject to higher tax rates. This phenomenon is called fiscal repression, but some critics call it a secret tax.

Labor has pledged not to increase income tax or National Insurance contributions if it wins next week's general election, while the Conservatives have pledged to abolish the main rate of self-employed National Insurance contributions in the next parliament.

But neither major party has said it will lift the freeze on personal income tax limits, which both hope will expand tax collections and offset some of the spending promises in their manifestos.

By the end of 2024-25, tax receipts on profits will reach $272.6 billion, up 16.3 billion from the previous year, Suter said.

Rachael Griffin, a tax and financial planning expert at Quilter, an asset management firm, said the figure exceeds projections from the Office for Budget Responsibility, the fiscal watchdog, of 1.1 million additional tax bills and 6.7 million new taxpayers by 2027-28.

She added that the financial impact was far greater than the government originally anticipated and that government coffers would grow exponentially as more and more people benefited.

Income tax starts to be levied on incomes above £12,570, and HMRC estimates that 37.4 million people will pay it in 2024-25.

Tax authorities expect the number of people paying the additional tax rate on income above $125,140 to rise from about 950,000 in 2023-24 to 1.13 million in 2024-25. The government lowered the additional rate limit from 150,000 to 125,140 in April last year.

The tax authority also expected more pensioners to become first-time taxpayers due to a combination of frozen tax bands this year and an increase in the value of state pensions.

It said that in 2024-25, 8.5 million people will reach state pension age, which is currently 66 and is set to rise to 67 from 2026. Meanwhile, in 2021-22, there were 6.7 million people who were of state pension age or overpaid income tax.

Prime Minister Rishi Sunak has pledged to spend $2.4 billion to unfreeze private pension payments for pensioners if he wins the election, meaning they will be subject to future increases under the triple-lock system.

Broadstone policy director David Brooks said the country's demographic changes expected more pensioners to have to pay income tax as the population ages and state pensions grow at a faster pace.

He added that it was entirely appropriate for pensioners with higher incomes to be subject to higher levels of tax, and that it was confusing why pensioners who pay tax were necessarily seen as bad.

HMRC data shows that the impact of the Bank of England (BoE) rate rises is expected to see tax on savings interest collected jump from £10.4bn in 2023-24 to £1.4bn in 2024-25, up from £9.1bn in 2023-24 and £1.4bn in 2021-22.

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