New data from HMRC has revealed that the number of higher rate taxpayers is rising rapidly and rose by 100,000 between the tax years 2019/2020 and 2020/2021.
As a result 4m are now paying higher rate tax.
The number of additional rate taxpayers also increased over the period 2019/20 to 2020/21 by 12,000 to 433,000, according to Quilter analysis.
The wealth manager and Financial Planner said the increases in the numbers paying higher rate tax were mainly due to the rate at which someone starts to pay higher rate shifting minimally despite wage growth over the period being significant due to the pandemic and rising inflation.
Rachael Griffin, tax and Financial Planning expert at Quilter, said: “Despite this, income tax thresholds are set to be frozen until 2028. Our own FOI found that HMRC forecasts nearly 1.5 million more people to be dragged into higher tax bands by 2027.
“The majority of those (1.13m people) will become higher rate taxpayers and these people may not feel wealthier as their salaries have simply kept up with inflation. This means that in real terms their buying power remains much the same, yet their salaries are taxed much more.
She said ‘fiscal drag’ would continue to nudge more people into higher rate bands.
Previous calculations from Quilter found that if wage growth was on average 5% per year for the next four years, but income tax thresholds remain frozen, then someone earning £50,000 today will be £2,643 worse off in the 27/28 tax year and £6,463 poorer over the four-year period.
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