Data issued by the UK tax authority HMRC appears to show that the UK’s highest earners paid 9% more in income tax in 2017/18 than in 2016/17. The main reason for this increase appears to be limits introduced to the amount of tax deduction for pension contributions as a result of changes introduced in 2016. Taxpayers earning income higher than GBP 150,000 accounted for GBP 54.3 billion in payments of income tax in 2017/18 compared to a approximately GBP 50 billion in 2016/17. Taxpayers earning less than GBP 150,000 paid just 1% more tax compared to the previous year (GBP 123.3 billion compared to GBP 122 billion in the previous year). Projections made by HMRC indicate that the total amount of tax paid by the highest earners will rise again in 2018/19 to GBP 57.9 billion.
In addition to the changes to the annual tax relief for pension contributions one of the main reasons for the additional tax paid was that the lifetime allowance for the amount an individual can save in a pension fund was cut to just over GBP 1 million. The change was made by the government to raise funds to enable them to make inheritance tax changes. Cuts to the annual and lifetime limits for pension savings are a “stealthier” method of raising tax revenue than changes to tax rates and are therefore preferred by governments.
