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HIGHER BAND TO PULL IN
750,000 MORE EARNERS |
Changes to the tax system in the
spring will see around 750,000 more people enter the higher
tax band, according to the Institute of Fiscal Studies
(IFS).
In its annual Green Budget, the
thinktank addresses new tax measures set for 5 April, when
the threshold of the 40% rate will drop from £37,400 to £35,001.
This will mean approximately a
quarter of a million taxpayers on annual earnings of £42,476
or more will be drawn into the higher band as the allowance
for tax-free earnings increases by £1,000 to £7,475. At
the same time, 500,000 low earners will drop out of the
income tax system, says the IFS.
The organisation's calculations
show that the average household will be £200 a year worse
off as a result of the scheduled changes in tax rates
combined with cuts to benefits.
The richest tenth of taxpayers will
lose an average of 3% extra from their net income, compared
with an average 1% for the population as a whole.
Up to 175,000 individuals of
working age, with an annual income of about £40,000, will
face an increase in their effective marginal rate from just
over 30% to more than 70%, as a consequence of the reduction
in the income at which family element of tax credit starts
to be withdrawn and a sharp increase in the rate at which it
is withdrawn, claims the IFS.
Senior research economist James
Browne remarked, 'Further reductions in household income are
inevitable as government policies aimed at helping to reduce
borrowing… are introduced. The set of the changes coming
in April is complex and the pattern of gains and losses
reflects this.
'We calculate that a further
850,000 would be brought into the higher rate bracket by
2014-15 if the government were to reach its ambition of a £10,000
allowance.'
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