There are five times as many additional taxpayers now compared to when the 45p rate was introduced in April 2010.
It was set at £150,000 15 years ago and the then new rate affected 236,000 taxpayers.
Now the threshold stands at just £125,140, meaning there are an estimated 1,130,000 additional rate taxpayers this year.
Many more people have been caught by the tax as it has failed to keep up with wage inflation. If it had kept pace with wage inflation the threshold would now stand at £239,928, according to Hargreaves Lansdown.
The threshold cut in April 2023 made a significant difference the firm said, almost doubling the number of additional rate income taxpayers since 2022/23 (from 587,000 to 1,130,000).
It doesn’t just affect the tax on income, Hargreaves Lansdown warned. Additional rate taxpayers also lose their personal savings allowance, and pay a higher rate of tax on savings and dividends.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The woes facing additional rate taxpayers can sound like nice problems to have to someone on a lower income, but if you’re among the hundreds of thousands of people dragged into the 45p rate, there’s nothing nice about it.
“It’s bad enough losing such a big chunk of your earnings, but it also has a knock-on effect on all sorts of other taxes.”
She advised additional rate taxpayers to take steps to cut the amount of additional rate tax they pay. She suggested seven things taxpayers could consider to help cut their tax demands
- Sacrifice salary into your pension.
- Carry forward any unused pension contributions.
- If you will earn less in future, consider deferring income.
- Shelter as much of your income-paying assets in ISAs as possible.
- Consider your cash ISA.
- Plan as a couple.
- Consider whether a Venture Capital Trust or Enterprise Investment Scheme could meet your needs.
