Over 4.4 Million Taxpayers Facing Higher Tax Brackets in 2024

The number of taxpayers subject to the additional rate of income tax is set to exceed 1 million for the first time. This increase is due to the freezing of tax thresholds, which has led to substantial revenue for HMRC. In the current tax year, an estimated £63.2 billion in income tax will be collected, totalling £272.6 billion — £16.3 billion more than the previous year.

Since 2021, over 1.77 million individuals above the state pension age have been required to pay income tax, and this trend is expected to continue until at least 2028. The impact of freezing income tax bands during a period of high inflation and wage growth is evident, with 4.4 million more people projected to pay income tax this year due to earnings surpassing the frozen personal allowance of £12,570.

Additionally, approximately 1.9 million people have been drawn into the 40% tax bracket since the freezes began, with 310,000 more expected to join this year. Notably, more than 1 million people are estimated to pay the additional rate tax this year—a significant milestone.

Furthermore, an additional 180,000 individuals are predicted to breach the £125,140 limit for additional rate tax, resulting in a total of 1.13 million additional rate taxpayers for the current tax year—a remarkable 117% increase since 2021.

Beyond income tax, HMRC anticipates collecting £10.4 billion from people’s savings interest in 2024/25. This substantial rise in savings-related tax revenue—£9 billion more than pre-pandemic estimates—has implications for taxpayers. Higher rate taxpayers with savings accounts paying 5.25% interest could see their savings interest reach £500 with a balance of £9,525, triggering a 40% tax liability on any additional interest.

However, basic rate taxpayers will pay 20% tax on savings exceeding £19,050. To avoid tax on savings interest, individuals can turn to cash ISAs, where they can save up to £20,000 annually without paying tax on earned interest.