Frozen tax thresholds push higher-rate taxpayers to 7.7m

The number of higher-rate taxpayers is projected to reach 7.7 million by 2026/27 as frozen income tax thresholds continue to pull more people into higher tax bands, according to the latest HMRC income tax statistics.

HMRC forecasts the number of higher-rate taxpayers will rise from 5.75 million in 2023/24 to 7.70 million by 2026/27.

Over the same period, the number of additional-rate taxpayers is expected to increase by more than 44%, while the total number of income taxpayers is forecast to climb from 36.7 million to 40.8 million.

Commenting on the figures, Isio head of wealth planning Mark Campbell said fiscal drag is continuing to reshape the UK’s taxpayer landscape.

He said: “Many people will find themselves paying higher rates of tax without necessarily feeling significantly wealthier.

“These figures will inevitably reignite debate around frozen tax thresholds, but they also highlight how financial planning is becoming more important for a growing number of people.”

Campbell said moving into the higher or additional-rate tax bands means clients increasingly need to consider tax, investments, pensions, liquidity and long-term financial planning together rather than focusing solely on annual income.

The figures, published today (15 July), also show income remains concentrated among the country’s highest earners.

In 2023/24, the top 10% of taxpayers accounted for 34% of all income before tax and 59.1% of all income tax liabilities, while the top 1% accounted for 12.4% of income before tax and 27.2% of income tax liabilities.

Money Talks: Beating the frozen tax bands

Isio partner and head of private office Rob Agnew said the figures suggest a broader group of taxpayers is contributing at the upper end of the tax system, even though the top 1%’s share of income tax liabilities is expected to edge down slightly to 26.6% by 2026/27.

He said the figures raise questions about how entrepreneurs and internationally mobile wealth creators are responding to changes in the UK’s tax regime.

Quilter tax and financial planning expert Shaun Moore said frozen tax thresholds have become one of the government’s most effective revenue-raising tools.

He said: “While pay packets have grown in recent years, much of that increase has simply reflected higher inflation and living costs.

“The result is that people are paying more tax not necessarily because they have become significantly wealthier, but because frozen thresholds mean a greater proportion of their income is being captured by the tax system.”