An extra 300,000 people are expected to fall into the 40% income tax band next year, thanks to climb...
An extra 300,000 people are expected to fall into the 40% income tax band next year, thanks to climbing salaries, a higher National Insurance rate and a freeze on the personal income tax allowance.
David Aaron, of IFA firm David Aaron Partnership, says almost three million people now earn more than the Inland Revenue's £29,900 higher rate income tax threshold, but that number is likely to increase again as the gap between average earnings and higher rate taxpayers has closed by almost 20% in ten years.
Ten years ago around 1.7m people fell in the top income tax band, says Aaron, but an individual needed to make an extra 76% above average earnings to reach that level.
Today, the number of people earning more than £29,900 is closer to three million and the higher rate tax threshold is 55% higher than average earnings, however, once the new NI rate kicks in there difference between these levels is less again, says Aaron.
"The Government have announced that the standard personal income tax allowance will be frozen next year meaning we will have even more people paying higher rate tax. Furthermore, if it is their earnings that takes them into higher rate tax then, because of the planned National Insurance increases next year, that rate will be 41%.
"While the personal allowances of the elderly will still increase next year, they may still be subject to higher marginal rates of tax.
"Anybody aged 65 or over is entitled to a higher personal allowance but this allowance is cut back if that person's income exceeds £17,900. This can mean that the income that causes this reduction is effectively being taxed at a rate of up to 33%."
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