More than 750,000 people 'pay higher tax rates than a millionaire'

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More than three-quarters of a million people pay more tax on each extra pound that they earn than a millionaire, according to analysis by a mutual insurer.

Royal London, which found around 775,000 people fall into this bracket due to "complications" in the tax system, said it should be rationalised.

Under the current UK income tax system, the amount of tax paid on an extra pound is intended to rise steadily as incomes rise.

Those under £11,500 pay no tax, those up to £45,000 pay tax at 20p in the pound, those up to £150,000 pay 40p in the pound, and those on higher incomes - including millionaires - pay 45p in the pound in income tax for each extra pound that they earn.

Ahead of the Autumn Budget on November 22, Royal London said it had found a large number of people not in the "millionaire's club" can lose anything from 60p to 70p in the pound.

It said complex rules which have been bolted on to the system have created anomalies where people who are not "super-rich" can lose more of any extra cash they earn in tax than a millionaire.

Three key groups of people make up the 775,000 total, it said.

These are parents where one partner earns £50,000 to £60,000 per year who are affected by changes to child benefit rules in 2013.  Around 375,000 people fall into this category.

People earning £100,000 to £123,000 could also end up paying more, with around 250,000 estimated to be affected, Royal London said.

Pension savers with a total income of £150,000 to £210,000 including employer pension contributions could also be affected, including around 150,000 people, Royal London said. People in the third group could end up paying  tax rates equating to 69.5% on their extra pounds, it calculated.

Sir Steve Webb, a former pensions minister who is now director of policy at 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. 

"It is hard to believe that this is a sensible way to run a tax system."

An HMRC spokesperson said: "The tax paid per pound has to reflect a wide range of personal circumstances, not only income.

"Increases to the personal allowance have taken millions of people out of income tax altogether this parliament, including four million over the last parliament, and 1.3 million since 2015."


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