2023 Tax Changes: How the Rise in Income Tax Additional Rate Threshold Impacts UK Taxpayers

The UK government recently announced a significant change to the Income Tax additional rate threshold, effective from April 6, 2023. The new threshold, which has been raised from ￡150,000 to ￡100,000, will have a significant impact on UK taxpayers, particularly those in higher tax brackets. In this article, we will take a closer look at how this change will affect UK taxpayers and what they can do to prepare.

First and foremost, it is important to understand the context of the change. The additional rate threshold is the level of income at which the highest marginal tax rate of 45% is applied. Prior to the change, any taxable income over ￡150,000 was subject to this high rate. However, with the new threshold in place, only income over ￡100,000 will be taxed at this rate. This means that the first ￡50,000 of income over the threshold will be taxed at a lower rate of 40%.

This change is expected to have a significant impact on UK taxpayers, particularly those in the highest tax bracket. The UK government estimates that around 300,000 taxpayers will be affected by the change, with many of them seeing a reduction in their overall tax bill. For example, someone earning ￡150,000 per year will see a reduction in their tax bill of ￡2,500, while someone earning ￡200,000 per year will see a reduction of ￡5,000.

It is also worth noting that this change is just one part of a wider reform of the tax system in the UK. The government has also announced a series of other changes, including the introduction of a new tax-free personal allowance, which is expected to benefit many low- and middle-income taxpayers. Additionally, there are plans to simplify the tax system, making it easier for taxpayers to understand their obligations and to claim the tax reliefs and allowances to which they are entitled.

Therefore, the increase in the Income Tax additional rate threshold is just one part of a larger set of reforms aimed at making the UK tax system fairer and more transparent. While the change will have a significant impact on UK taxpayers, particularly those in the highest tax bracket, it will also provide an opportunity for many taxpayers to reduce their tax bill and to save money. With the right advice and support, it is possible for taxpayers to make the most of these changes and to ensure that they are in the best possible position come April 6, 2023.