In a report titled, A deepening freeze: more adults than ever are paying higher-rate tax, the IFS revealed that one in five taxpayers and one in seven of the adult population, will be paying the higher rate tax.
This is near-quadrupling of the share of adults paying higher rates since the early 1990s.
By 2027 to 2028, more than one in eight nurses and one in four teachers are set to be higher-rate taxpayers.
IFS said this represents a “seismic shift” compared to the 1990s when no nurses and just one in 16 teachers paid higher-rate tax.
The six-year freeze to income tax allowances and thresholds which started in April last year is now set to become the single biggest tax-raising measure since Geoffrey Howe doubled VAT in 1979, according to the IFS.
It will play a major role in expanding the reach of higher rates over the coming years.
The freeze will also compound challenges facing the many workers whose earnings are not keeping up with inflation, the IFS explained.
It said a third of the expected record fall in household incomes this year is likely to be a result of this tax rise.
Isaac Delestre, research economist at IFS, said: “For income tax, the story of the last 30 years has been one of higher-rate tax going from being something reserved for only the very richest, to something that a much larger proportion of adults can expect to encounter.
“Alongside the fact that 1.7mn people will be paying marginal rates of 60 per cent and 45 per cent in the next few years, this represents a fundamental and profound change to the nature and structure of our income tax system.”
Delestre said the freeze to thresholds is “supercharging that process”, pulling an additional 2.5mn more people into paying rates of 40 per cent or more.
“Whether or not the scope of these higher rates should be expanded is a political choice as much as an economic one, but achieving it with a freeze leaves the income tax system hostage to the vagaries of inflation – the higher inflation turns out to be, the bigger impact the freeze will have,” he said.
Other findings
Elsewhere, the report revealed that in 1991 to 1992, 3.5 per cent of UK adults (1.6mn) paid the 40 per cent higher rate of income tax.
By 2022 to 2023, this was 11 per cent (6.1mn) paying higher rates, with that figure set to reach 14 per cent (7.8mn) by 2027 to 2028.
Source: IFS report - A deepening freeze: more adults than ever are paying higher-rate tax
The IFS said for the 40 per cent rate to impact the same fraction of people as it did in 1991, the higher-rate threshold would need to be nearly £100,000 in 2027 to 2028 – almost double its actual level of £50,270.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Millions of people will find themselves with a much bigger tax bill in the coming years, thanks to tax thresholds being frozen or cut.
