The number of people paying the highest rate of income tax in the UK hit more than one million last year as frozen thresholds dragged hundreds of thousands more into the additional rate band.
Roughly 720,000 people paid the 45% rate on income between £125,140 and £211,562 in 2024/25, according to a freedom of information (FOI) request submitted to HM Revenue and Customs (HMRC) by advisory firm Bowmore Financial Planning.
A further 385,000 paid the 45% rate on income above £211,562, according to the FOI.
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Had the top income tax rate moved in line with inflation since 2013, when it was lowered from 50% to 45%, it would now stand at £211,562, Bowmore said.
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It means the 720,000 additional rate taxpayers in 2024/25 wouldn’t have had to pay the 45% rate if the threshold had risen along with the cost of living.
John Clamp, fellow of the Personal Finance Society and chartered financial planner at Bowmore Financial Planning, said: “Both the 45% and 40% rate of income tax are capturing more and more taxpayers.
“A lot of people who consider themselves as having very little disposable income are now finding that they are having to pay the very highest rate of income tax.”
Income tax thresholds are currently frozen until April 2028, with rumours swirling the chancellor could announce an extension to the freeze in this month’s Budget.
The move is known as a “stealth” tax as it increases tax revenue for the government without rates actually increasing. As inflation rises, more people are drawn into paying tax – known as fiscal drag.
Even if the freeze isn’t extended beyond 2028, more people will likely have to pay more tax on their income over the next three years, based on inflation continuing to rise.
Clamp said: “The Government is content to let inflation do its work and add more and more people to the highest tax rate.
“Many people are working harder but taking home less, simply because inflation has drawn them into higher tax bands.”
Clamp added frozen thresholds could explain why productivity was stagnating in the UK, with workers dissuaded from working longer hours and boosting their pay.
UK wages continue to grow slowly, while GDP grew by just 0.3% between June and August. Meanwhile, the Office for National Statistics (ONS) says productivity has remained stubbornly low since 2009.
“It’s perhaps unsurprising productivity is stagnating,” Clamp said.
“If extra work barely boosts take-home pay because of frozen tax bands, people are less inclined to work longer hours or push themselves – and that ultimately drags on the economy.”
A Treasury spokesperson said: “The UK’s income tax system is highly progressive with an internationally high personal allowance.
“These figures relate to the previous government’s 2022 Autumn Statement.
“This government inherited the previous government’s policy of frozen tax thresholds and lowered Additional Rate Threshold.”
How to cut your tax bill
There are ways to avoid paying more tax if frozen thresholds are eating away at your hard-earned cash.
Clamp said those still working can reduce their income tax bill through salary sacrifice.
This sees you contribute more to your pension out of your salary, thereby reducing the amount of taxable income and therefore cutting the income tax and National Insurance contributions you pay.
That said, the government could look at abolishing or reforming salary sacrifice in the upcoming Budget.
Meanwhile, if you’ve got cash stashed away in a traditional savings account, you should also make the most of your annual ISA allowance.
You can currently add a total of £20,000 a year into multiple ISAs with any interest on savings or returns being non-taxable.
Any savings held outside ISAs are subject to the personal savings allowance. Basic rate taxpayers can earn £1,000 per year before being taxed and higher rate taxpayers £500. Those over the additional rate threshold don’t get any allowance.
