According to the IFS, one in five taxpayers will pay a higher income tax rate by 2027
According to the Institute for Fiscal Studies (IFS), one in five taxpayers will pay a higher income tax rate by 2027 as frozen thresholds weigh on households.
In recent decades, higher income tax rates are not just reserved for the wealthiest, but are now something a far larger segment of the population, including some teachers, nurses and electricians, can count on, it said.
By 2027-2028, 7.8 million people are expected to pay income taxes of 40% or more.
This equates to about one in five (20%) taxpayers and one in seven (14%) of the adult population – representing a “seismic shift” and about a quadrupling of the proportion of adults paying higher tax rates since the early 1990s – so called the IFS.
In 1991-92, 3.5% of UK adults (1.6 million) paid the 40% higher income tax rate. In 2022-23, 11% (6.1 million) paid higher rates, the report said.
By 2027–28, more than one in eight nurses, one in six machinists and fitters, one in five electricians and one in four teachers are expected to pay higher tax rates
The six-year freeze on income tax allowances and thresholds, which began in April last year, could become the biggest tax hike since former Chancellor Geoffrey Howe raised the sales tax in 1979, according to the institute.
The freeze will also exacerbate challenges for the many workers whose incomes fail to keep up with inflation, the IFS said.
The report predicted: “By 2027-2028, more than one in eight nurses, one in six machinists and fitters, one in five electricians and one in four teachers will have to pay higher tax rates.”
“Among police officers, architects and surveyors, and legal professionals, we are also seeing a significant increase over time in the proportion paying higher tax rates, with almost half of the latter two groups projected to pay higher taxes in 2027-2028.”
The normal personal allowance is £12,570. This is the amount of income on which someone does not have to pay taxes.
The history of income tax over the past 30 years has been one of higher tax rates moving from something reserved only for the very wealthy to something a much larger segment of adults can count on
For the 40 per cent rate to affect the same proportion of the population as in 1991, the higher rate threshold would need to be almost £100,000 in 2027-28 – almost double the £50,271 set by the UK government, the report says further .
People living in Scotland have different income tax brackets.
The IFS said it took tax rates in Scotland into account in its calculations to include both those paying the higher Scottish rate (at 42%) and Scotland’s top rate (at 47%), as well as those paying the higher rate (40%) or additional rate (45%) elsewhere in the UK.
Isaac Delestre, research economist at the IFS, said: “In income tax, the story of the last 30 years has been one of higher tax rates going from something reserved for only the very wealthy to something that accounts for a much larger share.” of adults can count on an encounter.”
He said freezing the thresholds “speeds up that process,” adding, “Whether or not to extend the scope of those higher tax rates is as much a political decision as an economic one, but implementation through a freeze remains in the income tax system.” are hostage to the vagaries of inflation – the higher inflation gets, the bigger the impact of the freeze will be.”
A Treasury spokesman said: “Having borrowed hundreds of billions to support the economy during the pandemic and Putin’s energy shock, we have had to make some tough decisions to fix public finances and reduce debt.” It’s important that we stick to this plan to halve inflation this year and let our economy grow again.
“To support working families, we doubled the personal tax-free allowance and exempted three million low-income earners from income tax altogether.”
https://www.standard.co.uk/business/money/one-in-five-taxpayers-will-be-paying-higher-rate-of-income-tax-by-2027-says-ifs-b1081314.html According to the IFS, one in five taxpayers will pay a higher income tax rate by 2027