Variety of UK revenue tax payers leaps by 4.4m in three years because of threshold freeze

The variety of individuals dragged into paying revenue tax within the UK has leapt by an estimated 4.4 million in three years due to the federal government’s freeze on thresholds, official knowledge reveals, a statistic prone to reignite the election debate on tax.

The figures present {that a} persevering with freeze on revenue tax thresholds, seen as a stealth tax by some, has pulled an additional 1.77 million pensioners into the revenue tax bracket.

The Conservative celebration has stated it might hold the thresholds unchanged till 2028, though it has promised to increase personal tax allowances for pensioners.

HM Income and Customs (HMRC) knowledge reveals that in 2024-25 there are an estimated 37.4 million revenue tax payers, up from 33 million when private revenue tax thresholds had been frozen within the 2021-22 tax yr.

That features 8.5 million taxpayers above state pension age, 26% greater than the determine of 6.7 million recorded in 2021-22.

The Conservatives are seemingly to make use of this statistic to tout their tax supply to pensioners, referred to as the “triple lock plus”. This could tie an annual rise in private allowances for pensioners to the rise in pensions below the so-called triple lock, which equates to whichever is the very best from common earnings development, inflation, or 2.5%.

Labour has not dedicated to this coverage. It has additionally stated it might follow the present plan for tax thresholds to stay the identical to 2028.

Tax has been one of many predominant battlegrounds of the election marketing campaign, with Rishi Sunak repeatedly claiming individuals would pay larger taxes below Labour. Keir Starmer and his workforce say they won’t elevate revenue tax, nationwide insurance coverage or VAT, and argue that the Conservative manifesto just isn’t correctly funded.

There was criticism that each predominant events are being opaque over tax and spending plans, with the Institute for Fiscal Research thinktank saying this week it was intentionally not specializing in the onerous fiscal selections to be made, whoever wins.

Commentators have repeatedly stated the tax threshold freeze is dragging extra low-income households into paying basic-rate tax, which begins at revenue of £12,570 a yr. Growing numbers of persons are additionally pulled into the upper 40% fee of tax, which in England, Wales and Northern Eire begins at £50,270 a yr (the upper tax fee and revenue band are totally different in Scotland).

This phenomenon, referred to as “fiscal drag”, raises billions for the Treasury and has been referred to as a stealth tax by critics and tax consultants.

General, the figures present that in 2024-25 there are an estimated 29.5 million fundamental fee taxpayers, up 2.1 million since 2021-22. The variety of UK higher-rate taxpayers has elevated to six.31 million from simply over 4.4 million over the identical interval.

Sarah Coles, head of non-public finance on the funding agency Hargreaves Lansdown, stated: “The agonising ache inflicted by fiscal drag and cuts to dividend allowances has been laid naked, with tens of millions extra individuals paying tax, and billions of kilos extra being raked in.”

On the figures regarding older individuals, the previous pensions minister Steve Webb stated the info confirmed the frozen tax thresholds, mixed with vital will increase within the state pension, meant the variety of pensioners paying tax had “continued to soar”.

It’s the continuation of a long-term pattern below which the variety of over-65s paying tax has elevated by about 4 million since 2010-11, stated Webb, now a accomplice on the actuarial enterprise LCP. “For a pensioner in Britain, being an revenue tax payer is now the norm quite than the exception,” he stated.

Slightly below 2.5 million pensioners now obtain state pensions which, on their very own, are in extra of the private tax allowance, in response to a current LCP evaluation. Most of those had been older pensioners on the outdated basic state pension who additionally certified for the “extra state pension” – also referred to as the state earnings-related pension scheme (Serps) or state second pension – it stated.

Rachael Griffin, tax and monetary planning skilled on the wealth administration agency Quilter, stated: “This morning’s statistics from HMRC reveal the continued affect of the Conservative authorities’s stealth tax agenda, because the variety of individuals being pulled into the upper and extra fee tax brackets has continued to soar because of frozen tax thresholds and the continuing affect of fiscal drag.”