Middle earners ‘paying more tax on extra income than millionaires’, study suggests

A new study suggests that hundreds of thousands of British middle earners are paying ‘more tax on their extra income than millionaires’ due to a catalogue of successive tax reforms implemented in recent years.
The research, which was carried out by insurance company Royal London, suggests that as many as 775,000 Britons are paying well above the top 45 per cent tax rate.
In the UK, anyone earning less than £11,500 per year typically pays no Income Tax, while a person earning up to £45,000 will pay tax at 20p in the pound.
Individuals earning up to £150,000 will then pay 40p in the pound, while anyone earning more than that amount will pay 45p in the pound.
However, Royal London’s study suggests that ceaseless changes to Britain’s tax framework – including the introduction of numerous marginal tax rates in recent years – are causing hundreds of thousands of middle earners to wind up paying more tax on every extra pound they earn than their ‘millionaire’ counterparts.
This is because middle earners are missing out on tax, pension and child benefit allowances as their incomes rise, as many marginal tax rates are often linked to what benefits an individual receives.
Steve Webb, of Royal London, said: “Most people would agree that as people earn more, they should pay a higher rate of tax. But a series of complex changes which have been bolted on to the tax system over recent years mean this is no longer true.
“This analysis shows that there are hundreds of thousands of people who pay more tax on each extra pound that they earn than a millionaire – in some cases losing 60p or 70p in the pound.”
The insurer identified a number of key groups of people that it claims are affected by the problem, including parents where one partner earns between £50,000 and £60,000, and individuals with a total taxable income of between £150,000 and £210,000.    

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