Home Business News Income tax stats: Stealth taxes see number of top taxpayers explode

Income tax stats: Stealth taxes see number of top taxpayers explode

27th Jun 24 12:25 pm

New figures from HMRC today show the number of income tax payers is expected to have increased dramatically over the last three years across all tax bands.

The total number of income tax payers is expected to rise from 33.0 million in the 2021/22 tax year to a predicted 37.4 million in the current tax year – a 13.3% increase.

At higher tax bands, the rate of increase is even more dramatic.

  • Number of basic and savers rate taxpayers rises 6.8% versus 2021/22, to 29.9 million in 2024/25
  • Number of higher rate taxpayers rises 42.6% versus 2021/22, to 6.3 million in 2024/25
  • Number of additional rate taxpayers rises 117.1% versus 2021/22, to 1.13 million in 2024/25

The top 50% of income tax payers were liable for 90.8% of total income tax in 2021/2022, and are expected to account for 90.5% in 2024/25.

The top 1% of taxpayers were liable for 30.7% of total income tax in 2021/22. This is projected to decline to a 28.2% share in 2024/25 as the overall amount of income tax collected rises.

Nicholas Hyett, Investment Manager at Wealth Club, said, “The combination of high inflation and frozen tax bands are dragging more and more people into paying income tax.

“You can see evidence of that across the board, but it’s particularly apparent at the top of the tax curve. In particular, the number of additional rate taxpayers has more than doubled in just three years, where workers have also been hit by a cut in the threshold at which the top rate of tax kicks in.

Many people who find themselves paying a higher rate of tax are no wealthier in real terms – with pay rises simply adjusting for a period of very high inflation, albeit with some distortion from the pandemic – but the government is taking a larger slice of their take home pay.

These sorts of stealth tax rises are beloved of politicians because while there’s no headline grabbing tax rise on day one, over time they can add up to a huge increase in overall tax take. Unsurprisingly, neither of the major political parties looks likely to unfreeze the tax bands after the election. Expect the fiscal drag to continue in the years to come.

As things stand there are ways for investors to mitigate some of the tax pain. Pensions allow you to save free of income tax, and are an excellent tool regardless of which tax bracket you fall into. For those higher earners who can take on a bit more risk, Venture Capital Trusts or EIS qualifying investments might be worth considering. Investors could potentially qualify for income tax relief of 30% in return for backing UK start-ups, with scope for tax free returns thrown in as well. Bear in mind though that these are risky, long-term investments – and should only be considered if you can afford to lose the money.”

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