Higher-rate earners hit by NICs rise

Individuals set to benefit from an increase to the higher-rate threshold in 2019 will only see half of the tax reduction expected, as a result of a measure not mentioned in the Budget speech.

In Budget 2018, the Chancellor announced that the higher-rate income tax threshold would increase from £46,350 to £50,000 in 2019/20.

Taxpayers earning between £46,350 and £50,000 will see their income tax rate reduced from 40% to 20%, providing what looks like a tax cut.

However, more detailed documentation published alongside the Budget said the upper profits and upper earnings limit for national insurance contributions (NICs) will increase at the same time.

This means those employees who fall within this earnings bracket will see their NICs rate rise from 2% to 12%.

In effect, taxpayers benefitting from a 20% reduction to their rate of income tax will see a 10% increase at the same time.

Steve Webb, director of policy at Royal London, said:

"The Chancellor is well within his rights to increase the bands over which the full rate of national insurance contributions is payable.

"But this wipes out half of the gain for higher earners of raising the starting point for higher rate income tax.

"He should have come clean and mentioned this in the Budget speech rather than leave it in the Budget small print."

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