Individuals earning over £100,000 (€114,587, $129,072) a year face a decrease in their personal allowance by £1 for every £2 over the £100,000, reducing to zero when gross pay reaches £123,000.
As a result, the tax bracket is now known as the ‘stealth zone’, and means that for the 2016/17 tax year, around 80,000 UK taxpayers will pay a 60% effective rate of tax.
The official top rate of tax in the UK is 45% on earnings over £150,000.
“It is understood that the number of people paying this rate is increasing significantly and is projected to increase to over 1m taxpayers by 2019,” said George Bull, tax partner at RSM.
Bull called on the government to amend this “confusing rule” and come up with a fairer solution, adding that “this hidden rate” is likely to increase if a Labour government is elected into power on 8 June.
“The Labour party has stated in their manifesto that they will lower the 45% band to earnings in excess of £80,000 from the current £150,000. In this respect employees who earn between £100,000 and £123,000 will effectively pay tax at 67.5% on those earnings.
“If we were to take the total tax burden of both the employee and employer who is required to pay NIC on providing this salary the combined rate becomes 73.2%, one of the highest rates of tax we have in this country,” he said.
Meanwhile, tax and advisory practice Blick Rothenberg said the UK is at risk of losing senior professionals because if the government fails to tackle the so-called ‘stealth zone’ of tax.
