Overview
- Fresh HMRC figures show 5.76 million people paid the 40% rate in 2023/24, up from 3.83 million in 2019/20, with 654,000 added in the last year alone.
- Chancellor Rachel Reeves has kept the threshold freeze in place until 2030/31, and analysts estimate it could raise up to £55bn a year by 2031.
- Fiscal drag occurs because pay rises meet fixed tax thresholds rather than higher ones, with key points at £12,570, £50,270 and £125,140 that trigger higher rates.
- Cliff edges now bite at £60,000 when child benefit is withdrawn and above £100,000 when the personal allowance tapers, creating effective tax rates that can top 60%.
- Advisers say many workers are increasing pension contributions, using salary sacrifice and moving savings into ISAs, while some are holding earnings down to avoid breaching thresholds.