Analysis has found some workers are paying a top tax rate of 60 percent or even 93 percent, The Telegraph reports. These high marginal rates apply to a part of a person’s income, for those in high-paying professions such as law or banking.
The personal allowance tapers away at £1 for every £2 of income for Britons who earn between £100,000 and £125,140, which is effectively a 60 percent tax rate for this portion of a person’s income.
Those who earn above £125,140 have to pay income tax at 45 percent and lose their £12,750 personal allowance completely.
Graduates who started their university course after 2012 face paying out even more if they have a student loan to repay.
Repayments start once a graduate is earning £27,295 or more a year, with an effective extra tax rate of nine percent.
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High earners who pay the top rate also lose the savings allowance, which applies to income from funds held in savings accounts.
Those on the basic rate of tax can earn up to £1,000 in interest while high-rate payers can earn £500 before having to pay tax.
People on the additional rate for tax lose this allowance entirely, meaning they get a tax bill on any interest outside an ISA or their pension savings.
For example, a person who earns £124,150, who graduated in the last ten years and received a £1,000 pay rise, would be paying tax at an effective rate of 93 percent, factoring in National Insurance.
Daniel Pryor, from think tank the Adam Smith Institute, said: “Nobody should lose most of their pay rise to benefit withdrawal.
“Marginal rates reform won’t grab the headlines on Budget Day, but politicians must explore ways of making our tax system simpler and fairer. If we want to boost growth and raise living standards for everyone, work must always pay.”
A Treasury spokesman said: “We’re committed to protecting those on low incomes which is why [we] have steadily increased the tax-free personal allowance since 2010 to make it one of the most generous in the world, where 30 percent of people have been taken out of paying income tax altogether, and over 80 percent of taxpayers pay the basic rate – something only made possible by responsible management of the public finances.”
Tens of thousands of Britons will pay capital gains tax for the first time as the threshold is being halved, from £12,300 to £6,000, it was announced in the Autumn Statement.
The threshold will be slashed next April and will be halved again in April 2024, to £3,000.
Tommy McNally, CEO of tax-refund app, Tommys Tax, said the tax changes would hit pensioners and business owners.
He said: “Jeremy Hunt has reduced the exemption for capital gains tax from £12,300 to £6,000, while dividend allowance will be cut from £2,000 to £1,000.
“This is set to directly affect business owners and retirees who rely on dividend income to supplement their pensions.”
He also warned Britons: “Taxpayers must ensure that they are aware of the new tax regulations so that they are aware of the correct amounts they should be paying.
“With HMRC under relentless pressure due to the increased number of audits alongside September’s disastrous mini-Budget, people looking to file their tax return should start the process now to reduce any chance of penalties when submitting.”