Recession cuts number of higher rate taxpayers

The number of higher rate taxpayers in the UK is expected to fall by one million in two years, according to official figures.

HM Revenue and Customs (HMRC) predicts that 2.9 million people will pay higher rate tax in 2009/10 – down from 3.89 million in 2007/08. The decrease means the amount paid in income tax will plummet from £91bn to £75.1bn during this period.

Earlier this year the Government raised the threshold at which higher rate tax is paid from £34,800 to £37,400. Earnings above this figure are taxed at 40%.

While this has inevitably reduced the number of higher rate taxpayers, experts claim the banking crisis and subsequent curb on City bonuses has also taken its toll on the incomes of higher earners.

‘If a lot of the higher rate taxpayers in financial services are not getting bonuses, this prediction is not entirely unrealistic,’ said James Browne, a senior research economist at the Institute for Fiscal Studies (IFS).

The findings come in the wake of reports suggesting that the number of millionaires in Britain has more than halved since 2007.