Higher Rate Tax Payers up 43% in the last 3 years
Higher Rate Tax Payers up 43% in the last 3 years
In total 2.5m taxpayers will have to pay higher and additional rate tax for the first time, with the situation unlikely to improve before 2029 at the earliest, based on the latest freeze extension announced at the Budget.
There will be 6.3m higher rate taxpayers in the current tax year 2024-25, up 43% from 2021-22, and 1.13m paying the 45% additional rate tax, more than double the number just three years ago!
It is not only income tax take which is generating millions in extra tax for the Treasury. Changes to dividend tax and the virtual removal of the tax free allowance to the current £500 limit means that individuals earning income from dividends will face higher tax bills.
In the current tax year, it is predicted that taxpayers will pay £17.8bn in dividend tax, up £960m in a single tax year.
The latest HMRC figures, released in December, showed that tax revenues from April to November hit a record high of £537bn, with a huge increase in capital gains tax (CGT), up £15bn.
There was a surge in disposals since October, largely due to expectations that CGT would be cut at the Budget on 30 October. There was huge hike in CGT disposals in October and November, totalling £471m over the two months, up £125m compared with £346m the previous year. November CGT receipts were £222m, up from £172m; normally these figures are quite stable month to month with little fluctuation.
The impact of fiscal drags means it is critical to do some basic tax planning, with savings a good place to start.
Basic rate taxpayers can receive up to £1,000 in interest from savings accounts each year without paying tax, while higher rate taxpayers can receive up to £500. But it is important to note that additional rate taxpayers receive no allowance on savings interest, except when money is held in ISA products, up to the annual £20,000 limit.
Dividends are an area to watch closely, with income from stocks and shares, ISA’s are protected from dividend tax, so this can be an efficient way to save.
For investments outside an ISA, the first £500 of dividend income is free of tax in the current tax year.