750,000 to face higher rate tax from April

Approximately 750,000 people will face higher rate tax from April amid changes to tax bands that hit the rich hardest, according to the Institute of Fiscal Studies (IFS).

The IFS’s Green Budget, which will be launched on Wednesday, will say the increase is down to changes to the level at which top end rates begin and is made to compensate for changes at the bottom.

James Browne, a senior research economist at IFS, says: “While taking 500,000 people out of tax altogether, the way the government has increased the personal allowance to ensure that higher rate payers do not gain will increase the number of higher rate tax payers by 750,000.” (article continues below)

From April, the personal allowance will rise by £1,000 to £7,475 while the level at which the 40% tax rate begins to bite will fall more than £2,000 to £35,001. The 50% bracket comes into play at £150,000.

Browne says: “We calculate a further 850,000 would be brought into this higher rate bracket by 2014-15 if the government reaches its ambition of a £10,000 allowance in the same way.”

The IFS adds that changes coming onto force will cost the richest 10th of the population about 3% of their net income compared with 1% for the population as a whole.