23 Million People Pay No Income Tax, 43 Percent of All Adults

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May 23rd 2022
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23 Million People Pay No Income Tax, 43 Percent of All Adults

A new IFS report reveals some startling statistics about the spreads of income in the UK and what being in the top one percent means.

310,000 individuals make up the top 1 percent of 'income tax payers' in the UK. To be among this group of people you would need to be earning at least £162,000 per year. The top 0.5 percent of 'income tax payers' earn at least £236,000 per year. The top 0.1 percent of highest 'income tax payers' earn a minimum of around £650,000 per year.

A pre-tax income of minimum £120,000 is required to be in the top one percent of all earners. This group is made up of 540,000 people.

These sets of data are part of a new study published by the IFS. The study looks into the hype around 'the one percent' - and gets some very interesting statistics by delving into HMRC data banks. A quick note before I go on, the data is taken from HMRC stats based on tax year 2014-2015. If people aren't paying tax due to evasion or avoidance - they are not in the data-sets - this includes pension contribution arrangements. Similarly, people earning money through capital gains are also not included - and finally, it will exclude people structuring income through companies but keeping income 'retained' within the company will not be declaring it as personal income.

Yes! the headline is correct - 43 percent of adults do not pay income tax. 31 million adults in the UK paid income tax out of a total of 54 million. The 23 million people in this set who did not pay income tax were not evading taxes. The reason is that they were below the thresholds over which tax is payable. In 2014, the tax-free allowance threshold was £10,000 for income tax and the primary threshold £7,956 for national insurance.

The top one percent is predominantly made up of middle-aged males based in London. The group members are very transient and someone in the top one percent this year has a 25 percent chance of not being in it the next year. Up to a third of income for people in this group is from partnerships or via dividends - this is much higher than for people in lower income groups.

Dividends are paid from either companies or shareholding and therefore can be structured before being paid to reduce taxes. Dividends are also generally taxed at lower rates than regular income taxes. Partnerships can also be used to efficiently structure taxes.

Over three percent of all people, or five percent of men, born in 1963 would be in the top income taxpayer group in the fifteen years since year 2000. This means these people at some point would have been earning over £160,000 in a single tax year.

Since the 1980's the share of national income held by the top one percent (540,000 people) has more than doubled - from 6 percent to 14 percent.

The top one percent of earners have 12 percent of the income and pay 27 percent of all income taxes. The spread of income taxes shows that the top one percent contribute 27 percent of total taxes. The bottom 50 percent of earners in the country contribute around 10 percent of total taxes.

The median 'income tax payer' earns around £22,000. To be in the top 10 percent of earners the income needs to be at least £51,000. However in the top one percent the income needs to be at least £162,000.

A person just breaking the £51,000 income barrier to get into the top 10 percent of earner group will have nearly 5 million people earning more than then, but 22 million people earning less.

The full report is available at the IFS website.

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