Income tax additional rate threshold decreased

The measure

The Chancellor announced that the government will reduce the additional rate threshold from 6 April 2023, so that the 45% additional rate tax will apply to all non-dividend income above £125,140 for taxpayers other than those in Scotland. Income between £125,140 and £150,000 will therefore be taxed at 45% rather than the current 40% (or 39.35% instead of 33.75% for dividend income). This will cost most additional rate taxpayers £1,243 in additional income tax.

The reduction in the additional rate threshold also results in the £500 personal savings allowance no longer being available to those with income between £125,140 and £150,000. This results in further income tax of up to £225 on savings income.

Furthermore, the Chancellor has announced the additional rate threshold will be frozen at its new level of £125,140 from April 2023 until April 2028. These measures are forecast to raise over £3.7 billion by April 2028. 

Taxpayers living in Scotland will only be affected by these changes to the extent that they have savings or dividend income.

The Chancellor also announced that numerous other personal tax thresholds will remain frozen until April 2028.

Who will be affected?

The measure will affect individuals and trustees who are subject to income tax.

The effect of income tax thresholds on taxpayers living in Scotland is different, as they are affected by the personal allowance but are only affected by the UK higher rate and additional rate thresholds to the extent that they have savings or dividend income. The tax rates on their other income are set by the Scottish government.

When will the measure come into effect?

The additional rate threshold will be reduced to £125,140 from 6 April 2023 and frozen until April 2028.