The Chancellor announced he is scrapping the 45 percent additional rate of income tax. He also said he would cut the basic rate of income tax to 19 pence in April 2023, one year earlier than expected. He said: “That means a tax cut for over 31 million people in just a few months’ time.”
Chancellor Kwasi Kwarteng said the UK’s additional rate of income tax at 45 percent is higher than the headline top rate in other G7 countries.
He continued: “I’m not going to cut the additional rate of tax today. I’m going to abolish it altogether.
“From April 2023 we will have a single higher rate of income tax of 40 percent. This will simplify the tax system and make Britain more competitive.
“It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country. And, Mr Speaker, after all, this only returns us to the same top rate we had for 20 years – including the entire time the Opposition was last in power – bar one month.”
Between £12,571 and £50,270 people pay the 20 percent basic rate.
The higher rate of 40 percent then applies to income between £50,271 and £150,000.
Under the current rules, the additional rate of 45 percent kicks in on income over £150,000.
The change will now see the additional rate be abolished from April 2023, leaving the higher rate as the top rate.
Martin Lewis, the money saving expert explained what these tax cuts mean for “mega earners” on his Twitter.
He said: “From next April the 45 percent top rate of tax (applies to those earning £150,000) will be scrapped.
“So the top rate will be the 40 percent higher rate threshold.
“This means mega earners, pay the same rate as those on £50,000. #MiniBudget.”
Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton said: “This was a very aggressive tax-cutting budget from the new Chancellor.
“In the short-term, taxpayers will welcome those tax cuts, especially given the cost of living crisis.
“The big question is whether these tax cuts will generate sufficient growth to off-set the tax the Chancellor has given up.
“It’s a big gamble from Kwarteng and, if it doesn’t come off, it’s one that we could all be paying for for years to come. Fingers crossed he’s right.”