Latest figures from HMRC reveal that the number of higher rate tax payers is set to have risen rise by nearly 2.5m over the past two years as fiscal drag pulls more high earners into higher rate tax bands.
HMRC's latest Income Tax Liabilities Statistics suggest the number of higher rate taxpayers will rise from 5.75m in 2023/2024 to 7.7m by 2026/2027.
The number of additional-rate taxpayers paying 45% tax is also expected to rise significantly by 44% over the same period.
Rob Agnew, partner and head of private office at Isio Wealth Management, said: "The headline figures point to a rapid increase in higher-rate taxpayers, but an equally interesting story sits beneath the surface. Despite the number of additional-rate taxpayers being projected to increase by more than 44% between 2023/2024 and 2026/2027, HMRC expects the top 1% of taxpayers to account for a smaller share of Income Tax liabilities, falling from 27.2% to 26.6%.
"There are likely to be several factors behind that trend. A broader group of taxpayers is contributing to the upper end of the tax system, but it also coincides with a period of significant change in the taxation of wealth and increasingly international competition for entrepreneurs and globally mobile capital. The statistics don't tell us whether recent policy changes are beginning to influence behaviour, but they do raise important questions about how the UK's most successful wealth creators are choosing to organise their affairs.
"Even with this projected reduction, the top 1% will still contribute more than a quarter of all Income Tax receipts, while the top 50% of taxpayers are projected to account for around 90% of all Income Tax paid. That underlines how the UK's public finances remain dependent on a relatively small group of successful individuals.”
AJ Bell analysis suggests that the nation’s tax bill has risen £121bn since frozen thresholds began. Income tax thresholds have been frozen until 2031.
AJ Bell, which provides an investment platform and SIPPs, estimates 1.3m people are set to pay the 45% additional rate in the coming tax year, more than double 2021/22 levels. Additional-rate taxpayers now make up 3.2% of all taxpayers.
The firm also estimates almost one in four taxpayers will be over State Pension age by the end of this tax year.
Laura Suter, director of personal finance at AJ Bell, said: “The nation is paying more tax, and that trend isn’t ending any time soon. The latest figures show a huge increase in the number of people paying income tax, as frozen allowances and high wage growth combine forces to squeeze the incomes of the working population.
“Frozen tax thresholds are affecting almost everyone who pays income tax, from pensioners to anyone earning more than the £12,570 personal allowance. But the biggest impact is felt by those pushed into a higher tax band.
“There is expected to be 7.7 million higher rate taxpayers this year, an increase of more than 1 million in the past two years alone. The impact of the higher rate tax band being frozen at £50,270 since 2022 means that the number of higher rate taxpayers will rise by 74% in the current tax year, compared to the 2021/22 tax year.”
How the government's total tax take has changed | |
Tax year | Total Income Tax |
2026/27 | £347 billion |
2025/26 | £329 billion |
2024/25 | £304 billion |
2023/24 | £274 billion |
2022/23 | £245 billion |
2021/22 | £226 billion |
Change since 2021/22 | £121 billion |
Source: HMRC / AJ Bell | |