What makes you wealthy in the UK?
What the government perceives as ‘wealthy’ counts when it comes to tax. We break down the figures and explain 10 ways to protect yourself from the taxman
Are you wealthy? You might not feel it if you stand next to a billionaire, but you might be when compared to your neighbours down the road. And that might matter to the government in terms of how much tax it wants you to pay.
New figures from HMRC break down individuals’ earnings into wealth brackets. Governments look at this data to determine things like who has the broadest shoulders when it comes to bearing the brunt of income tax and National Insurance rates in the Budget.
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How much do you need to be wealthy in the UK? The wealthiest by income
If you were to quantify 'wealthy' by income, the top 1% of taxpayers earned at least £207,000 in the 2023/24 tax year, according to analysis of HMRC personal incomes data by AJ Bell.
The income level of this 99th percentile increased from £201,000 in the tax year ending 2023. Over the 10 year period between the tax years ending 2014 and 2024, the income level of the UK’s wealthiest 1% increased from £159,000 to £207,000.
Going down the wealth chain, the top 5% earn £93,600. The top 10% have earnings of £67,400, and the top 20% £49,900, the figures showed.
Sarah Coles, head of personal finance at AJ Bell, said: “There will be people on these kinds of incomes who don’t consider themselves wealthy, but it doesn’t matter what you think: it’s what the government thinks that counts when it comes to tax.
“Being considered wealthy feels like a nice problem to have, but it comes with risks. At a time when taxpayers are being squeezed at every turn, those with the broadest shoulders are taking the brunt of the heavier load. If the government decides you’re wealthy, there’s a risk you’ll be in the frame for whatever tax tweaks lie in store next.”
Income levels at all percentiles have generally increased each year from the tax year ending 1993 to the tax year ending 2024, the HMRC data showed.
The median income before tax increased to £29,700 in the tax year ending 2024, a 4.8% increase on the previous tax year median income of £28,400. Over the 10 year period between the tax years ending 2014 and 2024, the median income before tax increased from £21,900 to £29,700.
Who is wealthy in terms of assets?
If you were to quantify who is wealthy as the households holding the most assets, the latest Office for National Statistics data show that in 2022, the wealthiest 10% of households held at least £1,200,500 of assets. This consisted of £624,000 of property, £626,000 of pension wealth, £218,000 in savings and investments, and £123,000 of personal belongings.
By age group, the average value of assets tends to peak in relatively early retirement – between 65 and 74, when households have an average of £502,500 in assets. Their household wealth is 33 times higher than for households aged 16 to 24, according to the ONS data.
People’s assets tend to start low, build slowly, then pick up the pace when they hit 55. They then spend gradually as they go through retirement.
It means the next wealthiest group is aged 55 to 64 and then the over 75s. If you’re in this position, and have been carefully building assets to fund your retirement, the idea of losing it to tax at an age where you have fewer options to rebuild wealth could be particularly worrying, especially given rising social care costs.
Why who is considered wealthy matters
When it comes to who among the wealthy may be the focus of any future Budget changes, it could be that higher earners and people with the most assets are the biggest potential target.
Coles said: “Successive governments have used higher earners as useful tax-producing machines. The freezing of the income tax thresholds has meant higher rates of tax cut in earlier down the pay scale.”
The main UK income tax personal allowance and higher rate thresholds were last increased in April 2021 and have been frozen at those levels (£12,570 personal allowance and £50,270 higher rate threshold) since April 2022. These thresholds are set to remain frozen until April 2028.
For example, in 2021/22, when the thresholds were first at their current level, you would have to be in the top 16% of earners to pay higher rate tax. In 2023/24 you would only need to be in the top 19%, and in the years since it would have spread even further.
“The problem with this approach is that not all high earners are equal from a total wealth perspective. While some have built up significant assets, others haven’t – especially if they haven’t earned at this level for long,” said Coles.
Successive governments have also targeted savers and investors, taxing wealth as it grows by cutting annual allowances for capital gains and dividend tax, as well as increasing the rates.
“The issue with this approach is that people tend to hold more wealth as they get older, building to a peak when they retire before spending their way through their assets in retirement. Dipping into this wealth means there will be less to fund retirement for a longer period as people live longer,” Coles pointed out.
A focus on taxing wealth at the end of life, by freezing inheritance tax thresholds and bringing pensions into the inheritance tax net, also means those who are relying on an inheritance to fill a hole in their finances, such as their retirement savings, could find themselves falling short, Coles added.
10 steps to protect yourself from a tax raid
1. Pension contributions attract income tax relief at your highest marginal rate, so are a good way to bring down the amount of tax you pay at higher rates, while boosting your income in retirement.
2. Check if your employer offers a salary sacrifice scheme, which will save you the National Insurance on those contributions too. These schemes are set to get less generous in 2029, but will still be a valuable tool for employees and there’s still ample time to take advantage.
3. Money saved in a cash ISA can grow completely free of income tax, so consider the best home for your savings.
4. Investments within stocks and shares ISAs are free of both dividend tax and capital gains tax, so are a sensible place to start investing.
5. If you have existing investments outside an ISA, you can consider using a Bed and ISA to move up to £20,000 worth into the tax wrapper in the current tax year – as long as you have the ISA allowance available.
6. Take advantage of your capital gains tax annual allowances, realising gains within the £3,000 allowance each year as you go along. You can also use any losses to offset gains made in the same tax year, to reduce the amount that could be subject to tax.
7. If you’re married or in a civil partnership, you can share assets between you without triggering a tax bill, so you can both make full use of your allowances.
8. Consider using your annual inheritance tax gifting allowances to bring down a potential bill in the future.
9. Check whether you can afford to make regular gifts from income, which come out of your estate for inheritance tax purposes immediately.
10. Think about making larger gifts that would pass out of your estate for inheritance tax purposes after seven years. However, don’t be in a rush to give away too much, too soon, or you could face a shortfall later in life.
