There has been a 142% increase in the number of additional rate tax payers since the tax bands were frozen in 2021, latest HMRC figures reveal.
Some 55% more people are now expected to pay the 45% additional rate tax band in 2023-24 as a result.
Meanwhile, more than eight million pensioners are now paying income tax – a rise of one million since the freezing of tax bands.
Laura Suter, head of personal finance at AJ Bell, said: “Since tax bands were frozen in 2021 an extra 373,000 people have been pushed into paying the highest rate of tax on their income.
“But if we look back to when the Conservatives first came to power, during the Coalition government in 2010, we’ve seen a near four-fold increase in the number of additional rate taxpayers, rising from 236,000 up to 862,000.”
This year the number of higher-rate payers is expected to hit its highest ever, with 5.6m people paying tax at 40%. It represents a 29% increase since tax bands were frozen in 2021.
Ms Suter said: “It’s not just working age people who have faced this rising tax tide, pensioners are being hit too. There has been a 10% increase in the number of people over the age of 66 who are paying income tax.
“If we look over the longer term, there are now two million more pensioners paying income tax than there were when the Tories came to power in 2010. But one million of those have been dragged into the income tax net in the past two years alone, thanks to frozen tax bands.”
The annual income tax statistics published by HMRC showed:
• In 2023/24 the number of over-65s paying income tax stood at 8.5m, an increase of 10% on the 2022/23 figure of 7.73m; the figure of 8.5m is exactly double the number of taxpaying over-65s in 2004/05;
• The total number of taxpayers of all ages rose by 1.3m to 35.9m; slightly more women (0.7m) than men (0.5m) were dragged into the tax net;
• More people are paying tax at higher rates; the numbers paying the top (45%) ‘additional’ rate soared from 555,000 to 862,000, while the numbers paying at the higher (40%) rate rose from 5.28m to 5.59m.
Former Pensions Minister Steve Webb, partner at LCP, said: “The surge in the number of pensioners paying income tax shows that the policy of freezing tax thresholds is really beginning to bite. The number of pensioners paying tax will continue to increase rapidly in years to come, particularly if inflation remains relatively high and thresholds continue to be frozen.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Back in the 1990s, fewer than 5% of people paid higher rate tax, whereas now it’s more than 15%.
“It’s a particularly blunt tool, relying on unpredictable inflation to do the work of deciding who pays tax and how much – rather than making a specific decision about what is fair and what makes sense. It means plenty of people who never thought they’d face this kind of tax being landed with huge tax bills.”
