Top earners lose £19,000 to frozen tax thresholds

High earners have lost thousands of pounds because the additional rate tax threshold has stayed frozen at £150,000 for more than a decade, new analysis has suggested.

Kwasi Kwarteng, the Chancellor, announced plans to abolish the 45p rate in his mini-budget, only to about-turn in the face of fierce opposition.

The threshold at which people pay 45pc tax has not changed since 2010, while inflation and wages have risen. As a result, a worker on a salary of £150,000 in 2010 whose earnings have kept pace with inflation will have paid an extra £19,092 in tax, according to wealth manager Quilter.

This year alone, that taxpayer will pay almost £3,000 more than if the tax freeze had not been in place. Had the threshold risen in line with inflation it would now be £206,570, financial advice firm NFU Mutual said.

Sean Mccann, of NFU Mutual, said: “This ‘fiscal drag’ will have cost some people significant sums in tax over the past dozen years.”

There are 630,000 additional rate taxpayers. Although they make up only 1pc of the population, their number has more than doubled since 2010, according to the Institute for Fiscal Studies.

More than a third of additional-rate taxpayers would not be paying 45pc at all had the threshold increased with inflation. Tax freezes have dragged 240,000 taxpayers into the net since 2010, the IFS said.

In his March 2021 Budget, the then chancellor Rishi Sunak announced tax thresholds, including income tax bands, would be frozen until 2025-26.

If the Government continues with the freeze as planned, the number of taxpayers who pay 45pc will grow to 760,000 over the next three years, the IFS has predicted.