Frozen Tax Thresholds Drive 7.7m to Higher Rate

HMRC’s latest income tax statistics show the number of higher-rate taxpayers is set to rise to 7.7 million by the 2026/27 tax year, driven by frozen income‑tax thresholds that keep pulling people into higher bands.

Projected growth in higher‑rate and additional‑rate brackets

The forecast indicates a climb from 5.75 million higher‑rate payers in 2023/24 to 7.70 million three years later. During the same period, the additional‑rate segment is expected to expand by more than 44 percent.

Overall, the total pool of income taxpayers is projected to increase from 36.7 million to 40.8 million, reflecting steady population growth and rising earnings across the board.

Concentration of income among top earners

Data for 2023/24 reveal that the top 10 percent of taxpayers earned 34 percent of all pre‑tax income and were responsible for 59.1 percent of total income‑tax liabilities. The wealthiest 1 percent accounted for 12.4 percent of pre‑tax earnings but shouldered 27.2 percent of the tax bill.

By 2026/27, the share of income‑tax liabilities for the top 1 percent is expected to dip slightly to 26.6 percent, even as a broader base of earners moves into the upper tax brackets.

Mark Campbell, head of wealth planning at Isio, said the trend illustrates “fiscal drag” reshaping the taxpayer setting. He warned that many will pay higher rates without feeling significantly wealthier, a point echoed by other industry observers.

Campbell noted that moving into higher or additional‑rate bands forces clients to look at tax, investments, pensions, liquidity and long‑term planning together rather than focusing solely on annual income. The shift highlights the growing relevance of wide financial advice.

Rob Agnew, a partner at Isio and head of its private office, added that the figures suggest a wider group of contributors at the upper end of the tax system, even as the top‑percent share of liabilities eases marginally.

Shaun Moore, a tax and financial‑planning expert at Quilter, described frozen thresholds as one of the government’s most effective revenue‑raising tools. He explained that while pay packets have risen, much of the increase reflects inflation and higher living costs, not genuine wealth growth.

For many, a larger slice of their paycheck is now subject to higher tax rates simply because the thresholds have not kept pace with wage growth.

In practice, families that previously hovered just below the higher‑rate ceiling may find themselves paying extra tax each year, even if their standard of living remains unchanged. The added burden could affect disposable income, prompting households to reassess budgeting priorities.

Financial planners are likely to see more clients seeking strategies to mitigate the impact of fiscal drag, such as pension contributions or tax‑efficient investments. The demand for advice on balancing liquidity with long‑term goals may grow as more taxpayers confront higher liabilities.

The government’s decision to keep thresholds static continues to generate debate among policymakers and the public. Critics argue that the approach disproportionately affects middle‑income earners, while supporters point to the steady flow of revenue that helps fund public services.

Overall, the projected increase to 7.7 million higher‑rate taxpayers highlights a fiscal environment where income growth alone does not guarantee a lighter tax load.

As thresholds remain frozen, the tax system will keep capturing a larger share of earnings.