Martin Lewis addressed the ‘confusion’ around the Income Tax bands (Image: ITVX)
Money expert has addressed widespread confusion over a perceived income tax rate change.
The founder announced how he has been inundated with questions about a change to income tax bands for England and Wales, with many asking him: “Why has no one publicised that they’ve sneakily reduced the higher 40% income tax rate to £37,701?”
This is because the government website on now lists that the higher tax rate band starts at £37,701, rather than £50,270, as it should be.
Those earning over the threshold for the higher income tax band would have to pay 40% tax on every £1 above the threshold, rather than 20%, and also have their Personal Savings Allowance cut to just £500.
It means many people in a panic about losing money on the higher tax band have come to Martin for his sage advice.
:
I keep getting people ask me “why has no one publicised that they’ve sneakily reduced the higher 40% income tax rate to £37701!?”They haven’t. In general you don’t pay tax at 40% until your earnings are over £50,271 (and then only on the amount above that). People are getting…
— Martin Lewis (@MartinSLewis)
The financial guru has set the record straight about what’s going on.
He stressed that the income tax bands haven’t changed, and that the higher rate still begins at £50,270, but the website is just being confusing with how it’s displayed, with the £12,570 Personal Allowance already subtracted.
He said: “I keep getting people ask me ‘why has no one publicised that they’ve sneakily reduced the higher 40% income tax rate to £37701!?’
“They haven’t. In general you don’t pay tax at 40% until your earnings are over £50,271 (and then only on the amount above that). People are getting confused because of how it is displayed.
“Most get a personal (tax-free) allowance of £12,570. Then you can earn £37,701 at the basic rate.
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“Which means you start paying the higher rate at £12,570 + £37,701 = £50,271 as it has been for the last few years.”
He added the system is different in Scotland, but ‘similar principles apply’. In Scotland, the higher rate starts at £43,662.
Of course, more and more people are being dragged into the top band thanks to ‘fiscal drag’, as wages increase for inflation but the bands stay in the same place.
There are ways to reduce your income tax bill, though, such as paying more into your pension pot or donating to charity.