Income Tax Additional Rate Threshold from 6 April 2023 (2024)

Who is likely to be affected

Income taxpayers, employers and pension providers.

General description of the measure

The Income Tax additional rate threshold (ART) will be lowered from £150,000 to £125,140, the income level at which an individual will not have any Personal Allowance, because £1 of the Personal Allowance is withdrawn for every £2 of income above £100,000 from 6 April 2023.

Policy objective

This policy supports the government’s objective of putting the public finances on a sustainable path in a way that is fair, with those on the highest incomes taking on a larger burden.

Background to the measure

This measure was announced at Autumn Statement 2022.

Changes to the Income Tax ART will apply to the main Income Tax rates, which apply to non-savings, non-dividend income, for taxpayers in England, Wales and Northern Ireland. This will also apply to the savings rates, dividend rates and the default rates which apply for taxpayers across the UK.

Since April 2017, the Scottish Parliament has set the rates and thresholds for non-savings, non-dividend income of Scottish taxpayers.

Detailed proposal

Operative date

The measure will have effect from 6 April 2023.

Current law

Section 10(5A) of the Income Tax Act (ITA) 2007 provides for the ART, which is currently set at £150,000.

Section 35(1) of the ITA 2007 provides for the Personal Allowance, which is currently set at £12,570.

Section 35(2) of the ITA 2007 provides for how the Personal Allowance is withdrawn (with £1 of allowance lost for every £2 of income above £100,000).

Proposed revisions

Legislation will be introduced in Autumn Finance Bill 2022 to set the ART at £125,140 for 2023 to 2024 until 2027 to 2028, as the Personal Allowance is set at £12,570 until 2027 to 2028. The legislative default will then be for the ART to increase in line with any future increases to the Personal Allowance.

Summary of impacts

Exchequer impact (£m)

These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing accounts for behavioural effects, including individuals reducing their taxable income and, where they have flexibility, choosing to receive income in the 2022 to 2023 tax year before the threshold is lowered, to reduce their exposure to the threshold reduction.

Impact on individuals, households and families

The impact analysis that follows relates to the impact of the legislative provisions outlined above, gains and losses are presented in comparison to the ART remaining at £150,000 from 6 April 2023 onwards.

From 2023 to 2024, this measure will impact around 792,000 taxpayers of whom around 232,000 will pay the additional rate of tax who would not have done so had this threshold been maintained at £150,000.

For those with income between £125,140 and £150,000, the average cash loss is £621 in 2023 to 2024. For those with income above £150,000 the average cash loss is £1,256 in 2023 to 2024.

Actual impacts for individual taxpayers will vary according to individual circ*mstances.

The measure is not expected to have any significant impact on family formation, stability or breakdown.

Equalities impacts

Income tax changes apply regardless of personal circ*mstances or protected characteristics such as sex, race or disability. Equalities impacts will reflect the composition of the Income Tax paying population.

This measure will affect more men (606,000) than women (186,000), and more people below the state pension age (696,000) than above state pension age (96,000). This is because more people below the state pension age are likely to be in work.

Impact on business including civil society organisations

Payroll software will need to be updated to reflect this change as part of the annual updating of software for employers and pension providers. The measure is not expected to impact civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will need to implement minor changes to IT systems to support safe implementation of this measure. These changes are expected to be implemented at minimal cost to HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from tax receipts.

Further advice

If you have any questions about this change, please contact the Income Tax Structure team by email: incometax.structure@hmrc.gov.uk

Declaration

Victoria Atkins MP, Finance Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.