"The number of pensioners paying a punishing 60 per cent income tax rate has more than doubled in just three years, as frozen tax thresholds drag tens of thousands more older savers into higher tax bands. New figures from HM Revenue & Customs show that around 77,000 people aged 66 and over fell into the "60 per cent tax trap" in the last tax year - up from 38,000 in 2021-22. The steep rate applies to anyone earning between £100,000 and £125,140 a year."
"Under the rules, for every £2 of income over £100,000, taxpayers lose £1 of their personal allowance. The allowance is fully withdrawn once earnings hit £125,140. Combined with the 40 per cent higher-rate tax, this creates an effective marginal rate of 60 per cent. For example, someone earning £100,000 who receives a £10,000 pay rise would pay £4,000 in income tax on the raise - but would also lose £5,000 of their personal allowance, adding a further £2,000 to their tax bill."
Frozen personal tax thresholds since 2010 have pulled increasing numbers of older savers and workers into higher tax bands, doubling pensioners facing an effective 60% marginal rate from 38,000 to about 77,000 in three years. The 60% marginal rate applies to income between £100,000 and £125,140 because the £12,570 personal allowance tapers away once income exceeds £100,000, with £1 of allowance lost for every £2 over £100,000. If the personal allowance had been indexed to inflation it would be roughly £155,000 today, which would substantially reduce the size of the punitive band and the fiscal drag on earnings.
Read at Business Matters
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