In five years, the number of 45% taxpayers has more than doubled

What should you do if your band is higher?

Despite minimal changes in their purchasing power, frozen thresholds force more taxpayers into higher tax brackets.

According to the most recent HMRC projections, more than a million Britons will be additional rate taxpayers in the 2026-2027 tax year, with record numbers paying more than the basic rate of income tax.

As a record 3.2 percent of the population earns at least £125,140, the number of people in the highest tax bracket is expected to reach 1.3 million this year, double that of 2021-2022.

Since the 2023-2024 tax year, the number of additional rate taxpayers has increased by 33.8 percent due to the failure of tax thresholds to rise in proportion to inflation.

In the meantime, there is a sharp increase in the number of taxpayers with higher rates (40%). In the 2026-2027 tax year, an estimated 7.7 million Britons will pay tax at this rate because their income ranges from 50,270 to 125,140, a 34% increase over the 2023-2024 tax year.

Watch the entire video here: The total number of UK taxpayers has also increased. In the 2026-2027 tax year, there are expected to be 40.8 million taxpayers in all bands, up from 36.7 million in 2023-2024.

More Britons are falling into higher tax brackets due to frozen thresholds.

As more people's incomes surpass the thresholds, the higher and additional rate tax bands are seeing rapid increases.

However, when accounting for inflation, many of them are paying taxes at higher rates than they would have in 2021-2022.

This is the outcome of a procedure known as fiscal drag, in which the government freezes tax thresholds rather than raising them to reflect inflation. This implies that workers are forced into higher tax brackets when their earnings increase, even if it's just to keep up with inflation.

Fiscal drag is sometimes referred to as a "stealth tax" because more people begin to pay income tax at higher rates even though their purchasing power hasn't increased much.

The tax-free personal allowance, for instance, has not increased in line with inflation and has stayed at 12,570 since 2021. Using the Bank of England's inflation calculator, it should have increased to about 16,013 by May 2026 if it had.

Workers are paying taxes on their earnings between 12,570 and 16,013 because of frozen thresholds, whereas they wouldn't if thresholds had risen in proportion to inflation.

Laura Suter, director of personal finance at AJ Bell, said: "Frozen tax thresholds are affecting almost everyone who pays income tax, from pensioners to anyone earning more than the 12,570 personal allowance. However, those who are forced into a higher tax band experience the greatest impact.

"Every extra pound you make after 50,270 is subject to 40% taxation instead of the basic rate of 20%. This means that the taxman receives a much bigger portion of any pay increase, so your monthly payslip will show much less additional money.

How to reduce your taxes.

Because you are keeping less of your earnings than you would have if thresholds had increased with inflation, fiscal drag can have a negative impact on your personal finances.

It can be especially challenging for those whose income falls between tax bands. For instance, a person earning £50,000 will now pay the standard 20 percent income tax rate. However, 730 of their earnings will fall into the higher 40 percent tax band if they increase by just 2 percent (1,000).

In this case, lowering your taxable income is the only way to reduce your tax liability. That does not mean declining a pay increase; rather, it means making more tax-efficient use of the additional funds.

The simplest way of doing this is to put more money into your pension through salary sacrifice as this is deducted from your pre-tax income.

The 730 percent of your income that falls into the higher rate tax bracket would be subject to 40 percent income tax if you made £51,000. However, you would pay no taxes on that 730 if you used salary sacrifice to contribute to your pension instead.

There are additional salary sacrifice programs at work where you can use your pre-tax income to cover specific expenses. There are programs to pay for electric cars and other products and services, but the most popular is the cycle to work program, which allows you to purchase a bike with tax breaks.