HMRC figures have shown within the 2022/23 tax 12 months, 6.1 million persons are set to pay either the 40 percent higher rate, or the 45 percent additional rate. That is up from the 4.3million recorded in 2019 when Boris Johnson first became Prime Minister.
Last 12 months, the Chancellor Rishi Sunak announced the Government would freeze the income tax personal allowance, dragging more people into higher tax brackets attributable to inflation.
There may, nonetheless, be a silver lining for higher rate taxpayers, and the reply may very well be present in their pension.
While many will find themselves crossing the edge for a better tax burden, they may relieve among the pressure through pension contributions, it has been suggested.
Steven Cameron, Pensions Director at Aegon, explained: “Pension contributions are deducted from earned income before income tax is calculated.
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“Currently, someone earning over £50,270 pays 40 percent income tax on income above this. So someone earning £53,270 can pay 40 percent tax on the highest £3,000.
“If as a substitute they pay that £3000 right into a pension, none of their income will likely be subject to higher rate tax.
“Put one other way, a £3000 pension contribution costs them just £1,800 out of after tax pay.”
Understandably, many individuals are currently feeling financial pressures that are difficult to shake.
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Amid the fee of living crisis, some will need every penny of their earned income simply to make ends meet.
Nonetheless, for others, the sacrifice may very well be one which isn’t particularly missed.
Individuals earning just above the edge, Mr Cameron suggested, could put somewhat extra aside to make a considerable difference.
He added: “Now may be an awesome time to spice up pension savings with some extra help from the taxman.”
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Nonetheless, like all pension related decisions, in search of financial advice might be key, especially in the case of tax implications.
The most recent data from HMRC, nonetheless, provided a bleaker picture in response to Clive Gawthorpe, Partner at UHY Hacker Young.
He suggested the predominant reason for the rise in taxpayers on the upper rate is attributable to fiscal drag.
Fiscal drag occurs when income tax brackets don’t move with inflation, making a deflationary effect.
Consequently, taxpayers fall into higher tax brackets, and overall income tax payment increase.
With inflation continuing to creep upwards, it is probably going much more Britons will find themselves susceptible to being propelled into a better rate tax bracket.
This may very well be the case even for individuals who have seen their incomes fall in real terms.
Mr Gawthorpe added: “Even by HMRC’s standards, the past 12 months has been a bumper one for creating recent higher rate taxpayers.
“For years, HMRC has allowed ever more taxpayers to be dragged into the upper rate as a stealth tax increase.
“It’s value noting that attributable to inflation, taxpayers sucked into the upper band were already having to make their monthly pay checks stretch further – without the extra burden of upper tax.”
