The top 45% rate of income tax was once billed as a tax only the wealthiest in Britain would ever face.
But over the next five years, an extra half a million will be dragged into paying the top rate – turning what was once a levy for the super-rich into a middle-class headache.
HMRC figures show that 1.2million people will pay the additional rate this year. By 2028 the figure is set to reach 1.5million, rising to 1.7million by 2030 – more than seven times higher than in 2010.
The surge is being fuelled by frozen tax thresholds and inflation, which together have pulled hundreds of thousands of earners into the top band. The 45% rate kicks in above £125,140, but the level has failed to rise in line with inflation.
Shaun Moore of wealth manager Quilter warned: “The number of people paying the additional rate of income tax has risen exponentially since thresholds were frozen.”
When introduced in 2010, the top rate was set at 50% on income above £150,000 and paid by just 236,000 people. Today, the threshold has been slashed, while salaries have climbed – bringing far more families into the net.
Katherine Waller of wealth manager Six Degrees told the Sunday Times: “When the additional rate was introduced, it was meant for the very highest earners.
“That’s clearly no longer the case… A far greater proportion of the workforce is now captured – far beyond what was originally intended.”
And she warned that the impact is being felt in household budgets: “In theory, the additional rate should apply to those with significant earnings and the corresponding lifestyle. In that context, a salary of £125,000 doesn’t stretch as far as it once did.”
Mortgage broker Adrian Anderson said: “The general feeling I get now from clients earning £125,140 a year is that they feel worse off in real terms than they were in 2015,
“I used to see additional-rate taxpayers sending children to private school, but now it feels like both parents have to earn a six-figure salary to manage school fees and higher mortgage costs.”
The reality for many is that once they cross the £125,140 line, almost half of any pay rise disappears in tax and National Insurance – with the bite rising to 56 per cent for those repaying student loans. Families also lose child benefit, free childcare hours and other allowances long before they hit the threshold.
Calculations from RSM UK show someone earning £130,000 would pay £44,703 in income tax – but could save £11,271 by paying enough into a pension to stay under £100,000, keeping their personal allowance and childcare benefits.
Financial advisers say strategies such as pension contributions, salary sacrifice for benefits like cars, and transferring savings to a lower-earning spouse can help. But the bigger picture is clear: the “six-figure club” no longer guarantees a luxury lifestyle.
