A deep freeze on thresholds by Chancellor Jeremy Hunt has resulted in two million workers being subject to an effective 60pc income tax rate by 2028.
Inflation of double-digits is expected to push millions of workers into higher tax brackets in the next six years.
Mr Hunt’s extended tax band freeze was confirmed in Thursday’s Autumn Statement. will see hundreds of thousands more workers earning more than £100,000. As wages rise to keep up with inflation, will result in a significant increase in workers earning more than £100,000.
However, taxpayers with incomes between £100,000 and £125.140 are not eligible for the £12,570 personal tax-free allowance. This allowance is at a £1 per £2 rate. They are subject to a 60pc tax.
According to NFU Mutual’s analysis of HM Revenue and Customs data, 1.3 million taxpayers earned more than £100,000. This is an increase from the one million who had it the previous year.
The firm also estimates that by 2028, when Mr Hunt’s tax threshold freeze is set to expire, two million workers will have earned at least £100,000. This means that at least 700,000 more taxpayers will be at risk from the 60pc tax.
Sean McCann of NFU Mutual stated: “By then the threshold won’t have changed for 18 Years – dragging an increasing number of people into higher marginal rates of tax as salary increases to keep up with inflation.”
He said: “Income between £100,000 and £125.140 is effectively taxed 60pc. When you add in 2pc national insurance, only £38 of each £100 earned between these amounts goes to the employee’s pockets. This means that earnings above £100,000. are subject to tax and national insurance at £15,587.
This announcement comes as Hunt plans to lower the threshold for the top 45p income tax rate from £150,000 to £125 140 as of next April.
The personal allowance disappears at £125.140. However, those who earn above the threshold are paid a marginal 60pc rate on earnings between £100,000 and £125.140, Mr McCann stated.
Analysis shows that 957,000 taxpayers could pay 45pc income taxes when the threshold for the additional-rate threshold is reduced next year. This will increase to a 1.1million in 2025-26.
Experts argue that the government would generate more revenue if the 60pc tax trap was removed.
According to Office for Budget Responsibility forecasts the average earnings will grow 18% between now and 2027/28. However, many taxpayers will see their wages shrinking due to the impact of fiscal drag and frozen tax thresholds over the next few years.
