Hundreds of thousands more workers have been dragged into Britain’s top income tax bands after another year of frozen tax thresholds left pay rises being swallowed by the taxman.
Around 480,000 more people are expected to pay the higher rates of income tax this year – at 40% or 45% – taking the total to a record 7.7 million, according to new HMRC figures. The increase means the number of higher-rate taxpayers has jumped by around 35% in just three years, with experts warning millions of people are paying more tax despite not feeling any better off.
Overall, Britain is expected to have 40.8 million income taxpayers this year – four million more than three years ago. The figures are the latest evidence of the growing impact of fiscal drag, where tax bills rise because earnings increase but income tax thresholds remain frozen.
The policy was first introduced by then Conservative Chancellor Rishi Sunak in April 2021 after the Covid pandemic.
It was later extended by his Conservative successor Jeremy Hunt, and Labour has continued the freeze, with thresholds currently due to remain unchanged until April 2031.
That means millions more workers are expected to be pulled into higher tax bands before the freeze finally comes to an end.
Marianna Hunt, personal finance expert at Fidelity International, said: “These figures show just how dramatically the tax landscape has changed in recent years.”
She added: “For many people, this hasn’t happened because they’ve suddenly become wealthy. Income growth and population growth have both contributed to the rising number of higher-rate taxpayers, but frozen tax thresholds have also played a significant role by steadily pulling more workers into higher tax bands – a phenomenon known as fiscal drag.”
Ms Hunt said higher-rate taxpayers were “no longer a small group of top earners”, adding: “Because of frozen tax thresholds, millions of workers bringing home what probably feels like a relatively normal income are now paying rates of tax that would once have been reserved for much higher earners.”
Mark Campbell, head of wealth planning at Isio, said: “Many people will find themselves paying higher rates of tax without necessarily feeling significantly wealthier.”
He added: “These figures will inevitably reignite debate around frozen tax thresholds, but they also highlight how financial planning is becoming more important for a growing number of people.”
Shaun Moore, tax and financial planning expert at Quilter, said the freeze had become one of the Government’s most effective revenue-raising measures.
He said: “While pay packets have grown in recent years, much of that increase has simply reflected higher inflation and living costs.”
Mr Moore added: “The result is that people are paying more tax not necessarily because they have become significantly wealthier, but because frozen thresholds mean a greater proportion of their income is being captured by the tax system.”
The HMRC figures also show how heavily the Treasury relies on top earners.
The highest-earning 10% of taxpayers paid 59.1% of all income tax in 2023/24, while the top 1% accounted for 27.2% of the total tax bill.