1 in 5 under-40s face paying higher rate tax by 2027
One in five under-40s will be dragged into paying higher or additional rate tax by the 2027/28 tax year as a result of frozen income tax thresholds, according to a new report.
Around 3.6m additional under 40s will face the higher rate of income tax between the 2022/23 tax year and the 2027/28 tax year, according to data from HMRC gathered by wealth manager and platform Quilter.
A further half a million will be asked to pay additional tax rate.
The Government’s income tax take has soared in recent years following the long term freezing of thresholds, as well as the reduction in the threshold for the additional rate of income tax.
Frozen income tax thresholds were initially introduced in the 2021-22 tax year and were recently extended to the 2027/28 tax year.
Quilter said that it seems likely that the new Labour Government could turn to income tax rises in its autumn Budget to plug the gap in public sector finances.
Rachael Griffin, tax and Financial Planning expert at Quilter, said any tax rises could see more under-40s turn to professional financial advice.
She said: “Those navigating the shift into a higher tax bracket will require a strategic approach to Financial Planning to help mitigate their tax liability, especially considering the considerable changes there have been to the tax landscape over the past few years.”
Quilter gathered data on the number of Britons to be pulled into higher or additional rate income tax brackets via a Freedom of Information request to HMRC.