The effect of the governments freeze on tax rate bands is becoming clearer according to the latest figures from HMRC. And the effect is massive tax increases for millions. Ask your Financial Adviser about tax hikes and they will explain.
The number of higher rate taxpayers has increased by 1.7 million people to over 5.5 million. That’s a 44% increase in since 2019/20. The number of top rate taxpayers at 45% has increased by 200,000 in the same period, which is an increase of 50%. These are big increases from a traditionally low tax Conservative government. Especially when the country is facing cost of living increases driven by high inflation.
By 2025 it is forecast that over 7 million people will be paying higher rate tax.
These increases are compounded by other frozen allowance increases in terms of the pensions Lifetime Allowance, the Capital Gains Tax allowance and Inheritance Tax Allowance threshold. All of these are also adding billions to the HMRC exchequer. More Financial Adviser tax hikes to discuss..
There have been suggestions that people should be able to access their pension funds earlier than 55 to relieve the cost-of-living increases, but most pension specialists do not think that this is a good idea. Other ways have been suggested, such as opting out of pension contributions, or using other investments first.
Despite these huge increases in the higher rate tax take, pensioners continue to be hardest hit. The government reneged on their promise to maintain the triple lock post Covid. The pension should have increased by 8.3% but instead the increase was capped at 3.1%. With inflation running at over 9% this means that pensioners are seeing a reduction in their buying power of 6% this year. With inflation set to continue to rise, this is only going to get worse.
There have been suggestions that the government will reinstate the triple lock next year and many think that this is the right thing to do.