The number of people paying the higher and top rate of income tax has almost doubled since the Conservatives took power in 2010…
The number of workers paying 40p on every £1 earned above £50,270 or 45p above £150,000 has risen from 3.26 million in 2020 to a record of 6.14 million this tax year.
Families also start losing tax-free allowances and benefits when they pay higher rates of tax.
Child Benefit – This begins to reduce when one member of a household earns more than £50,000, although payments into a pension don’t count as income. The full benefit is worth £21.85 a week for a first child and £14.45 a week for additional children. If either parent earns more than £60,000 they are entitled to nothing. Controversially, two people earning less than £50.000 get the full benefit, but a single parent on £50,001 will get less than two parents each earning £49,999.
Personal Allowance – Everyone gets a ta free personal allowance of £12,570 a year, but this is reduced by £1 for every £2 of earnings over £100,000 and this is lost altogether once income reaches £125,140.
Dividend nil-rate band – The value of dividends that can be earnt from shares tax-free has been frozen at £2,000 a year since April 2018, when it was cut from £5,000. Those paying the higher rate of income tax pay 33.75% on dividends above the allowance, whilst for top rate taxpayers it’s 39.35%. For basic rate taxpayers it’s 8.75%.
Savings allowance – For each year, £1,000 can be earned tax-free from interest in cash held outside an ISA. Fpr higher rate taxpayers this allowance falls to £500. Top rate taxpayers get nothing.
Annual pension allowance – For each year, £40,000 can be paid into a pension and attain full tax relief, but for top rate taxpayers earning £200.000 a year or more may start to lose some of this allowance under a complex calculation known as adjusted income.