1 in 5 could pay higher rate tax in 3 years



The number of higher rate taxpayers has soared by nearly 2m to 6.14m since the last election and could soar by a further 3m by 2025, according to a former Pensions Minister.

The increase since 2019 – revealed in latest HMRC figures – has been called “stunning” by LCP pensions consultant and former Pensions Minister Sir Steve Webb who forecasts an even bigger rise to come.

Sir Steve predicts an additional 3m higher rate taxpayers will be created by 2025/26, taking the total number of new higher rate taxpayers created over the lifetime of this Parliament to over 7m or well over 20% of the UK workforce of 32.7m.

HMRC figures show that in 2019/20 the number of higher rate taxpayers was 4.25m but by 2022/23 the number had risen to 6.14m, an increase of 1.89 million.  

The figures include those paying the ‘higher’ 40% rate or the ‘additional’ 45% rate.  The number paying at the 45% rate has risen in three years from 421,000 to 629,000.

Rising wages and tax thresholds failing to keep pace with this have been blamed for the increase.

Sir Steve believes that the number of higher rate taxpayers is set to rise significantly over the remainder of this Parliament due to the Chancellor freezing the starting point for higher rate tax until 2025/26.

Pensions consultancy LCP predicts that the total number of higher rate taxpayers could increase by more than 3m over the whole of this Parliament. This would take the total to over 7m in 2024/25.  

LCP says this equates to 1 in 5 of all taxpayers and would represent an increase of around 70% in the number of higher rate taxpayers over the Parliament.

In 2009/10 there were around 3.2m higher rate taxpayer compared with an estimated 6.1m in 2022/23.

Sir Steve said: “Paying higher rate tax used to be reserved for the very wealthiest, but this has changed very dramatically in recent years. The starting point for higher rate tax has not kept pace with rising incomes, and the current five-year freeze on thresholds has turbo-charged this trend.  

“People who would not think of themselves as being particularly rich can now easily face an income tax rate of 40% and around 1 in 5 of all taxpayers will soon be in the higher rate bracket.”