Quarter of a million to pay top rate in ‘major attack on the rich’

A QUARTER of a million workers will be dragged into paying the 45 per cent rate of income tax after Jeremy Hunt slashed the threshold at which it is charged.

The salary on which the additional rate is payable will be reduced from £150,000 to £125,140 effective next April, Chancellor Jeremy Hunt announced in the Autumn Statement.

It will be frozen until 2028, forcing 232,000 workers into paying the top rate of tax for the first time and costing these quarter of a million taxpayers £620 on average, according to wealth manager Quilter.

The number of workers paying 45 per cent has more than doubled since the rate was first introduced in 2010 – rising from 236,000 to 629,000 today – as wage inflation has pushed more taxpayers into the highest income tax band. Lowering the threshold will cost the 629,000 workers earning over £150,000 who are already impacted by the 45 per cent tax an additional £1,250.

A worker on £140,000 will pay £750 as a result and a taxpayer earning £130,000 will pay an extra £250.

Just two months ago, then-chancellor Kwasi Kwarteng promised that the top rate would be abolished altogether. But now the Government is hoping to earn £420 million in 2023-24 by catching more taxpayers in the 45 per cent net, and almost double that – £855million – in 2027-28.

Neela Chauhan of accountancy firm UHY Hacker Young said the move was “a major attack” on higher earners.

She added: “It’s going to bring in people into the upper rate who feel that they are far from being rich.”

Tax firm RSM said there are unexpected consequences of slashing the additional-rate threshold and the Chancellor had effectively imposed a new 67.5 per cent tax rate. Taxpayers earning over £100,000 lose their personal allowance at a rate of £1 for every £2 of income.

This means for every £100 they earn between £100,000 and £125,140, a worker takes home just £40 – because £40 is lost to income tax and another £20 to the tapering of the personal allowance – creating a 60 per cent tax trap.

Chris Etherington, of RSM, said lowering the threshold at which workers pay 45 per cent means some taxpayers will be hit by even higher charges.

He said: “With the reduction in the threshold at which the 45 per cent income tax rate is paid, someone with income of £125,140 will have £140 of that taxed at 45 per cent. That means the chancellor has effectively introduced a new 67.5 per cent tax band as a result of the measures announced.”