Additional 700,000 To Pay Higher Rate Tax In UK

by Jason Gorringe, Tax-News.com, London

08 December 2010

In the UK, the Treasury has confirmed that it is to lower the threshold at which it levies its 40% income tax rate.

Currently, taxpayers begin to pay the higher rate 40% tax on income above GBP43,875. But from April next year, that figure will fall to GBP42,475, bringing an estimated additional 700,000 earners into the higher tax bracket.

The misery will be further compounded by a rise of 1% to 12% in employee National Insurance contributions in 2011/12, on earnings between GBP139 and GBP817 per week (GBP7,225 and GBP42,475 per year) and from 1% to 2% on earnings above this level. The withdrawal of child benefit from higher rate taxpayers will further erode incomes from January 2013.

The 50% top rate threshold remains fixed at GBP150,000 per year.

The lowering of the higher rate threshold is designed to ensure that middle class taxpayers do not benefit from a rise in the personal tax-free allowance by GBP1,000 to GBP7,475 next April, which will take 880,000 people out of tax and benefit 23 million taxpayers by up to GBP170 a year, at a cost to the Treasury of GBP3.5bn.

The new tax thresholds were announced in June's emergency budget and confirmed by the Treasury on December 2.

“In summary, it is mainly higher rate taxpayers who will see increases in tax and national insurance charges," noted Patricia Mock, a director in the private clients practice at Deloitte. "Taking all the changes together (including child benefit), a couple with one earner taking home GBP25,000 pa and two children will see a reduction of GBP387 in overall liabilities. A similar family on GBP40,000 will see a reduction of GBP38, whilst a family on GBP50,000 will see an increase of GBP747."

In October it was revealed that the UK had leapt from 13th to 4th place in a league table of top-rate income tax in European Union countries.

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