IFS States High Earners ‘Increasingly Hit by Lack of Indexation’

IFS States High Earners 'Increasingly Hit by Lack of Indexation'

The Institute for Fiscal Studies (IFS) recently published a report which revealed that more people are being ‘dragged into higher rates of tax’ as a result of tax thresholds failing to rise in line with the rate of inflation.

The report states that, in 2007, the year before the top income tax threshold of £150,000 was announced, there were 319,000 individuals with income above this level. The IFS suggested that, as a consequence of the threshold not having moved since it was first announced, there are now 428,000 taxpayers with income above this level.

The report also stated that other tax thresholds being frozen in nominal terms include: the inheritance tax (IHT) threshold, at £325,000; the VAT registration threshold at £85,000, which is set to remain at this level until 2022; and the £110,000 and £150,000 thresholds at which the annual limit on tax-privileged pension saving begins to be reduced. Additionally, the £100,000 threshold at which eligibility for Tax-Free Childcare is removed is not adjusted for inflation.

Paul Johnson, Director of the IFS, commented:

‘Recent governments have, rather stealthily, increased the tax rates on high earners. If the government thinks there is a case for more high-income people to pay more tax, it should be upfront about that view.’

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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