742,000 workers to join 40% taxpayers next year
More than 742,000 workers are likely to become higher rate 40% taxpayers from next April due to the freeze on tax rate thresholds announced in the Autumn Statement, new analysis from Investec Wealth & Investment shows.
But the double whammy of inflation wiping out any pay rise and their increased tax bill is likely to leave them worse off as a result, the data shows.
Full-time employees in London and the South East are expected to make up nearly half (45%) of the new higher rate taxpayers in England and Wales with 213,165 workers in the capital and 122,543 in the South East moving into the 40% tax band.
As a result of the decision to freeze tax thresholds Investec Wealth & Investment estimates nearly a quarter (23%) of full-time workers will be paying 40% tax from April 2023 compared with 19.6% who currently pay it.
The 45% tax rate threshold is also being cut from £150,000 to £125,140, pushing far more people into the higher rate tax bracket than ever before. In addition to this there will still be those earning between £100,000 and £125,140 who will face an effective tax rate of 60% as they will start to lose personal tax allowances.
Investec says taking financial advice is important – people earning between £100,000 and £125,140 could consider additional pension contributions or charitable donations to offset the impact.
Average private sector pay rises are currently running at 6% – below inflation at 11.1% – which will mean anyone moving into the higher rate tax bracket is likely to suffer an effective pay cut due to the effects of rising prices and their higher tax bill, Investec Wealth & Investment says.
The table below shows the numbers of full-time workers across England and Wales likely to become 40% taxpayers from April 2023.
REGION | NUMBER PAYING HIGHER RATE TAX FOR THE FIRST TIME FROM APRIL 2023 | PERCENTAGE OF WORKERS PAYING HIGHER RATE TAX FROM APRIL 2023 |
London | 213,165 | 36.1% |
South East | 122,543 | 28.2% |
East | 74,881 | 25.9% |
North West | 69,666 | 19.1% |
West Midlands | 51,906 | 18.7% |
Yorkshire & The Humber | 47,293 | 18.2% |
South West | 44,337 | 19.3% |
East Midlands | 40,275 | 18.2% |
Wales | 30,459 | 16.3% |
North East | 27.915 | 15.4% |
ENGLAND AND WALES | 742,386 | 23% |
Faye Church, chartered financial planner at Investec Wealth & Investment, said: “Taking financial advice is key for all after the Autumn Statement. More than 740,000 workers are likely to start paying higher rate tax from next April as a result of recent announcements.
“Average private sector pay rises are running at 6%, which is lower than inflation. Workers already have less to spend due to rising prices and on top of that if they receive an average pay rise many will have to start paying higher rate tax eroding the value of each additional pound earned.
“Workers in London and the South East are taking the biggest hit from the higher rate tax band freeze but substantial numbers across England and Wales will be pushed into 40% tax highlighting the huge impact of the decision to freeze tax thresholds.
“The 45% tax rate threshold is also being cut from £150,000 to £125,140, pushing far more people into the higher rate tax bracket than ever before. Those earning between £100,000 and £125,140 will face an effective tax rate of 60% as they will start to lose personal tax allowances. Financial advice can help as it’s possible to offset the impact by increasing pension contributions to reduce income or make charitable donations.”
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