One in five taxpayers could be paying higher rate tax by 2027

The Institute for Fiscal Studies says that by 2027 one in five taxpayers will be paying higher rate tax.

The institute describes the change as a “seismic shift” since the 1990s.

Although the higher rate meant only wealthy taxpayers were liable, the six-year freeze in income tax and thresholds could mean that by 2027 that more lower rate earners will be liable.

The government doesn’t have to raise rates for this to happen. It can occur when inflation or income growth automatically moves a taxpayer into a higher bracket.

The Institute for Fiscal Studies (IFS) said this could mean some burses, teachers fitters and machinists could see themselves in a high-rate tax bracket in the future.

Isaac Delestre, who is a research economist with the IFS said that during the last 30 years higher rate tax has only been reserved for the richest earners and that a large proportion of adults wouldn’t achieve the earnings to be given this rate.

But the freeze on income tax will mean that it is influenced by inflation. He said, “The higher inflation turns out to be, the bigger the impact the freeze will have.”

The report also stated that there has already been an increase in the number of people paying the higher rate of income tax. In 1991/1992 there were 1.6 million UK adults paying this rate, but by 2022/2023 it has risen to 6.1 million people.

At the moment you need to earn £50,271 to pay the higher rate tax band, but to keep it in line with 1991/1992 figures you will need to be earning £100,000 in 2027/2028 if that doesn’t happen and the threshold stays at £50,271 a lot more people will be liable for higher rate tax in four to five years’ time.