Yahoo Finance Two million face paying 60pc income tax
Two million workers face paying an effective 60pc rate of income tax by 2028 following Chancellor Jeremy Hunt's deep freeze on thresholds.
Double-digit inflation is now expected to drag millions of workers into higher tax brackets over the next six years.
Mr Hunt's extended tax band freeze, confirmed in the Autumn Statement on Thursday, will mean hundreds of thousands of more workers earn more than £100,000 as wages rise to keep pace with inflation.
But taxpayers who earn between £100,000 and £125,140 lose the benefit of their £12,570 personal tax-free allowance at a rate of £1 for every £2 of income. It means that they are taxed at an effective rate of 60pc.
Around 1.3m taxpayers earned over £100,000 in the last tax year, up from one million in the year previous, according to analysis of HM Revenue and Customs data by financial advice firm NFU Mutual shows.
And by 2028, the year Mr Hunt's freeze on tax thresholds is due to end, the firm estimates that a total of two million workers will earn at least £100,0000 – meaning at least 700,000 more taxpayers will be threatened by the 60pc tax.
Sean McCann, of NFU Mutual, said: “By then, the threshold will not have changed for 18 years – dragging increasing numbers of people into the higher marginal rate of tax as salaries increase to keep up with inflation.”
He added: “Income between £100,000 and £125,140 is effectively taxed at 60pc, and when you add in national insurance of 2pc this means that only £38 of every £100 earned between these amounts ends up in the employee’s pocket. That means you lose £15,587 in tax and national insurance on the £25,140 of earnings over £100,000.”
It comes as Mr Hunt also announced plans to reduce the threshold for the top rate of 45p income tax from £150,000 down to £125,140 as of next April.
At £125,140, the personal allowance is lost completely, but even those earning above this threshold pay 60pc marginal rate on their earnings between £100,000 and £125,140, Mr McCann said.
According to analysis, 957,000 taxpayers could be paying 45pc income tax when the reduction to the additional-rate threshold kicks in next year – rising to 1.1 million in 2025-26.
Some experts argue that the Government would actually raise more revenue if it addressed the 60pc tax trap.
Average earnings are expected to grow by 18pc between now and 2027-28, according to Office for Budget Responsibility forecasts, but over the coming years many taxpayers will see their pay rises eaten away due to frozen tax thresholds and the impact of fiscal drag.
The Treasury did not respond to a request for comment.
