• 33% of people earning more than £50,000 don’t know their tax bracket
• The additional rate (45p) will be reduced from £150,000 down to £125,140 in this year 

According to Barclays Wealth, one in three people who earn more than £50,000 don’t know their current tax bracket.

Most Britons will be adversely affected by the frozen basic rate and higher rates tax bands, whilst hundreds of thousands of people will be affected by the reduction in the additional rate income taxes threshold.

We will explain the tax bands and what's changing next month.

Changes in income tax from 6 April?

A number of changes were made in the Autumn Statement in November.

This included the extension of the income tax threshold freeze for basic and higher-rate income tax to April 2028 and the lowering of the additional rate threshold from £150,000 down to £125,140 starting from 6 April 2023.

According to the Government, there are currently 629,000 people paying the additional income tax. This number is expected to increase dramatically when the threshold changes.

Barclays Wealth found that 2/5 of those who were to fall within the 45 percent bracket starting 6 April did not know that the threshold was being reduced.

A study that was conducted in the UK of more than 3,000 people earning over £50,000 revealed significant differences in their understanding of tax planning.

Two thirds of respondents said they are confident in their knowledge of income tax. However, one third of those who earned between £100,000.00 and £125,140 didn't know what the personal allowance taper was.

What is the personal allowance for? 

The personal allowance of £12,570, is the maximum amount most people can earn and not have to pay any tax.

After this amount, the tax is charged in bands. You pay tax at a specific rate on the income: basic rate at 20%, higher rate of 40% and additional rate of 45%.

A £60,000 earner would pay:

• There is no tax for the first £12,570
• 20% tax on amounts between £12,571 & £50,270
• 40% on amounts above £50,271.

The tax band that a person's highest income falls into determines their tax rate. This is their marginal tax rate, which is the amount they would pay on the next pound they earned.

People who pay 60% tax

The personal allowance begins to decrease for those who earn more than £100,000.

For someone who’s net income is above £100,000, their personal allowance goes down by £1 for every £2 they earn over £100,000, until their allowance changes to zero, when their income rises above £125,140. 

This marginal rate is much higher than those earning more who are on the 45p tax bracket.

This is because the marginal tax rate is 50% higher than it should be, as 50p of personal allowance has been taken for each additional £1 earned.

So the marginal income tax rate for a £100,000 plus earner of 40p, is essentially 50% higher at 60p.

The marginal tax rate drops once they exceed the £125,140 threshold and their personal allowance is gone. It will drop to 40% in the current tax year, and drop to 45% in the next tax year.

A person earning £118,000 could potentially pay £38,232 a year in tax, after having lost £9,000 of their personal allowance. 

This is £10,800 more tax than someone who earns £100,000. Based on the fact that every £2 earned above £100,000.00, £1 of your personal allowance is lost.

According to Barclays, more than 25% of people earning over £100,000.00 are not aware that HMRC requires them to complete a self assessment tax return.