Helen Morrissey, head of retirement analysis, Hargreaves Lansdown explains how to avoid the sneaky tax traps for higher rate taxpayers from higher pension contributions to transferable CGT allowances
Record high tax rates means millions more taxpayers have been dragged into higher rate tax since 2021 alone. As a result, four thresholds affecting higher rate taxpayers have fallen significantly behind wage inflation – costing them thousands of pounds.
The freezing of the higher rate threshold for income tax since 2021-22 means there are 7.08m higher rate income taxpayers in the current tax year - up 2.65m in five years.
Salaries have risen 29% since the threshold was frozen, had it kept pace with wage inflation it would be £64,848. Other thresholds have been even more affected with cuts to dividend tax and capital gains tax (CGT) thresholds just two of the most immediate to consider.
A pay rise is always welcome, but over the past few years it has come with a horrible sting in the tail for millions of people – pushing them over the threshold into paying higher rate tax. And there are several other sneaky traps lying in wait for higher earners when they cross a threshold.
