The Institute of Fiscal Studies (IFS) estimates that five million workers earning 'relatively modest salaries' could become higher rate taxpayers from 6th April 2013 as a result of the Budget announcement to lower the threshold at which individuals start to pay 40% on their income. From 6th April 2013 taxable income over £32,245 attracts tax at 40%, representing a £2,125 lowering of the threshold from 2012/13.
Whilst the increase in the basic personal allowance for 2013/14 was welcomed, the reality was that it had to be funded elsewhere as the government have no money to give away. The reduction in the higher rate threshold is therefore part of the trade off to bridge the £3.5 billion gap caused by the increase of the personal allowance.
The IFS has also questioned HMRC's estimate that lowering the additional rate from 50% to 45% from 6th April 2013 will only cost £100 million, as the prediction is 'highly uncertain'.
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