Money blog: Millions being dragged into paying more tax – despite NI cut | UK News

3.7 million extra Britons to be pulled into paying income tax and 2.7 million into paying higher rate, says watchdog
An estimated 3.7 million people will be pulled into paying income taxes by 2028-29 as a result of continued freezes to thresholds, according to the UK’s fiscal watchdog.
Meanwhile, 2.7 million people could be pulled into paying the higher rate of income tax by the same period.
And 600,000 may drift into the higher “additional” rate of income tax, according to the Office for Budget Responsibility (OBR).
This will net the Treasury a further £19.7bn in tax receipts by 2028-29 – even when factoring in cuts to national insurance – according to the watchdog.
The reason behind this is what is known as fiscal drag.
Fiscal drag assumes that people’s wage rise in line with inflation – which doesn’t always happen in reality.
Assuming wages do rise, and at the same time the tax thresholds remain the same, then people sitting just below the thresholds will move above that level and into a higher bracket.
This is significant for lower earners, who earn less than the personal allowance of £12,570 – the point at which people begin paying income tax.
But it also affects middle and higher earners too.
At the moment, from £12,571 to £50,270 the income tax rate is 20%, while from £50,271 to £125,140, the rate is 40%, with a 45% additional rate for earnings over £125,140.
But if thresholds are frozen, and people’s wages rise, then the number of people who move into the higher rate, and the amount of income tax they pay, will rise.
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