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Jeremy Hunt cuts 45p income tax threshold with 250,000 to pay more


The Chancellor confirmed the Government plans to reduce the threshold at which the 45p rate becomes payable from £150,000 to £125,140. On top of this, Mr Hunt outlined that the personal allowance, National Insurance threshold, and inheritance tax thresholds will be held until April 2028. This is part of the Government’s wider fiscal plan which the Chancellor believes will result in “inflation and interest rates end up significantly lower”.

With this move, around 250,000 taxpayers are expected to be pulled into the highest possible tax bracket.

Any Britons earning £150,000 or more will pay just over £1,200 more a year following this threshold change.

Overall, the Chancellor unveiled £55billon of spending cuts and tax increases as part of his Autumn Statement.

Mr Hunt reiterated this fiscal statement was being done to make sure “those with more contribute more” and that tax hikes would avoid “damaging growth”.

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However, criticism has been directed at this latest reform to the tax allowance with experts referring to it as a “stealth raid”.

Notably, the personal allowance freeze will last two years longer than initially expected when it was first announced.

Anthony Whatling, a tax partner at Evelyn Partners, shared how more people have been forced to pay more tax due to threshold changes in recent years.

Mr Whatling said; “In 1990 only 1.7 million people paid 40 percent tax, with the figure rising to 2.1 million when Tony Blair came into power in 1997.

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“HMRC estimated the number of people being drawn into the higher rate band to have surged by nearly 44 percent since the 2019/20 tax year to 5.5 million this year.

“At these rates of increase, and given that earnings are rising quite rapidly, it is probable that the number of people subject to 40 percent income tax will exceed eight million under this prolonged freezing of allowances until 2028.

“That will be double the number of higher rate taxpayers when the initial freeze was announced by Sunak in 2021. The threshold at which the top rate of income tax is paid has been frozen at £150,000 since it was introduced in 2010.

“Initially it was paid by 236,000 workers but is now paid by 629,000 – and with the slashing of the threshold to £125,140 it has been estimated that number could now jump by another 246,000.”

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Paul Barham, a partner at Mazars, added: “Income tax was always going to be in the government’s sights. With a gaping hole in the public finances, it’s an easy target for the treasury.

“Putting the thresholds on ice, and lowering the 45p tax band, is a double whammy and will raise billions for the treasury.

“Millions will be in the higher and additional rate tax bands in the coming years. And high earners will really feel the hit, with a higher proportion of their income subject to the 45 percent tax rate. Tax bills are only going in one direction for millions of people, and that is up.

“This makes tax planning even more critical. If salary sacrifice is an option through your employer, consider using it to reduce your taxable earnings or think about increasing your pension contributions.”

Sarah Coles, a senior personal finance analyst, Hargreaves Lansdown, shared who will be most affected by this “stealth tax”.

Ms Coles explained: “This was the noisiest of all stealth taxes, with details leaked for days, but long after everything goes quiet, it means the taxman will be quietly picking your pocket for years to come. Meanwhile, the change to higher rate tax means over 200,000 more people will be dragged into the 45 percent bracket.

“We don’t tend to notice stealth taxes in the same way as a cut, because they only kick in as we get a pay rise. It means we lose more of our extra pay – so we’re never actually worse off in nominal terms.

“Of course, once you take inflation into account, it’s another matter entirely. With regular pay up an average of just 5.7 percent, and inflation at over 11 percent, our wages are already falling behind inflation in real terms, so the taxman taking an extra slice leaves us with an even harder struggle to make ends meet.”



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