Almost a million people will face a higher rate of tax after Chancellor George Osborne lowered the threshold at which the 40 percent tax rate is charged.
From the beginning of the 2011-2012 tax year people earning £42,375 or more will face the higher tax, compared to the previous sum of £43,875, meaning the threshold has been dropped by £1,500.
Mike Warburton at accountants Grant Thornton said of the raise: “We knew it had to be a tough budget but there will be a wailing and gnashing of teeth by many higher rate taxpayers when they add up the damage. It’s a difficult balance between raising tax, and achieving fairness without killing enterprise. Many wealth creators will feel they have been knocked heavily with this assault on their finances.”
Chancellor Osborne stated that the new thresholds will remain frozen for three years, accountants have calculated that by next year a further 700,000 people will fall under the high earner 40 percent tax bracket. Under Labour there were around 3.8 million people paying the higher rates of tax, the new threshold will see that figure easily surpass 4 million, especially as the rate will stay frozen.
Leading accountant Barry Marshall said of the tax raises: “The Chancellor was faced with unavoidable announcements on significant spending cuts and substantial tax rises. Many of these changes had been trailed with a clear intention to manage expectations. However, tax rises are coming earlier than many had expected”.