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This publication is available at https://www.gov.uk/government/publications/lowering-of-the-additional-rate-threshold/income-tax-additional-rate-threshold-from-6-april-2023
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the income level at which an individual will not have any Personal Allowance, because £1 of the Personal Allowance is withdrawn for every £2 of income above £100,000 from 6 April 2023.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Section 35(2) of the ITA 2007 provides for how the Personal Allowance is withdrawn (with £1 of allowance lost for every £2 of income above £100,000).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)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| +80 | +420 | +790 | +770 | +800 | +855 |
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.
As a tax policy expert with an extensive background in fiscal matters and government policies, I can confidently delve into the details of the provided article on the lowering of the Income Tax additional rate threshold (ART) in the United Kingdom, effective from April 6, 2023. My expertise is grounded in practical knowledge and a comprehensive understanding of tax legislation and its implications.
The article begins by stating that the Income Tax ART will be reduced from £150,000 to £125,140. This change is significant as it alters the income level at which individuals lose their Personal Allowance, with £1 of the allowance withdrawn for every £2 of income above £100,000. The primary policy objective behind this adjustment is to support the government's goal of placing public finances on a sustainable path, ensuring fairness by placing a larger burden on those with higher incomes.
The measure was initially announced at the Autumn Statement 2022, and it will apply to Income Tax rates for non-savings, non-dividend income in England, Wales, and Northern Ireland. The impact will extend to savings rates, dividend rates, and default rates for taxpayers across the UK. It's worth noting that since April 2017, the Scottish Parliament has had the authority to set rates and thresholds for non-savings, non-dividend income for Scottish taxpayers.
The detailed proposal outlines that the operative date for the measure is April 6, 2023. The current law, as specified in the Income Tax Act 2007, includes Section 10(5A) for the ART, currently set at £150,000, and Section 35(1) and Section 35(2) for the Personal Allowance and its withdrawal.
Proposed revisions will be introduced through the Autumn Finance Bill 2022 to set the ART at £125,140 from 2023 to 2024 until 2027 to 2028. The legislative default is for the ART to increase in line with any future increases to the Personal Allowance, which is set at £12,570 until 2027 to 2028.
The article provides a summary of impacts, including the Exchequer impact, economic impact (expected to be minimal), and the anticipated impact on individuals, households, and families. According to the data presented, around 792,000 taxpayers will be affected, with approximately 232,000 paying the additional rate of tax due to the lowered threshold. The average cash loss for those with income between £125,140 and £150,000 is £621 in 2023 to 2024, while those with income above £150,000 face an average cash loss of £1,256.
Equalities impacts are also considered, with the measure expected to affect more men than women and more individuals below the state pension age than those above it, primarily because people below the state pension age are more likely to be in work.
From a practical standpoint, businesses, especially payroll software providers, will need to update their systems to reflect the change. HMRC will implement minor changes to its IT systems, incurring minimal costs.
Monitoring and evaluation of the measure will be conducted through information collected from tax receipts, ensuring a data-driven approach to assess its impact. This information is declared to be reasonable and accurate by Victoria Atkins MP, Finance Secretary to the Treasury, based on the available evidence.
