Half a Million More People Now Pay 45% Income Tax: What It Means for You

Published by RJP LLP – Chartered Certified Accountants & Tax Advisers

According to recent data from HMRC, the number of people paying the UK’s top rate of income tax has surged by over 500,000 in just two years — a result of tax threshold freezes and bracket creep.

This sharp increase means more middle- and high-earning taxpayers are now facing a 45% marginal tax rate, traditionally reserved for the ultra-wealthy. At RJP LLP, we’re helping clients review their tax planning strategies in light of this shift.

What’s Behind the Rise in 45% Taxpayers?

The spike is largely due to the government’s decision to freeze the personal allowance (£12,570) and higher rate threshold (£50,270) until 2028, and also reduce the additional rate threshold before tax is payable at 45%.

This means more income is taxed at higher rates over time, even if your salary hasn’t increased in real terms.

For the 2024/25 tax year:

• The personal allowance remains at £12,570;
• The higher rate threshold after which tax is payable at 40% commences at £50,270;
• The personal allowance is withdrawn once income reaches £100,000; and
• The additional rate threshold after which tax is payable at 45% commences at £125,140.

It’s estimated that over 1.1 million taxpayers now fall into the 45% income tax category — up from just 421,000 in 2019/20

Who is affected?

You may now fall into the 45% income tax bracket if:
• You’re a business owner drawing dividends and salary from your company
• You’ve recently received a promotion or bonus pushing you above £125k
• You’re a partner in a professional firm or have multiple income sources

This can also have knock-on effects on:

• Child Benefit eligibility
• Personal allowance tapering
• Pension tax relief limits

Tax Planning Strategies to Consider

Now more than ever, proactive tax planning is essential. At RJP, we work with clients to manage their effective tax rate and explore legal strategies to reduce liabilities. Here are some areas we advise on:

• Pension contributions to reduce adjusted net income;
• Salary vs. dividends optimisation for company directors;
• Gifting and trust planning for family wealth management;
• Timing of income or bonuses to stay within thresholds;
• Utilising spousal allowances to redistribute income.

Don’t Wait Until the Tax Return Deadline

If you’ve unexpectedly found yourself in the additional rate band — or close to it — now is the time to act. Leaving planning until 31st January could mean missing out on key opportunities to mitigate exposure to the 45% rate.

Speak to RJP’s Tax Experts

At RJP LLP, we help high-earning individuals, business owners, and company directors stay ahead of tax changes with tailored planning and advice.

If your income has increased or you’re unsure how these changes affect you, get in touch for a personalised review.
📩 Contact us at partners@rjp.co.uk

Don’t pay more tax than you need to. Let’s make sure your affairs are structured efficiently.

RJP LLP is a firm of Chartered Certified Accountants and Tax Advisers specialising in tax planning for entrepreneurs, business owners and professionals across London and the South East.