Who are the top 1% of income tax payers?

A recent report looking at who pays the most income tax reveals some interesting findings.   

The Institute for Fiscal Studies (IFS) published a briefing note in early August with a detailed answer to the question of what it takes to enter the 1% club. Around 310,000 people make up this cohort, with some predictable and not so predictable traits:

  • They have taxable income of at least £160,000 in 2014/15. The historic nature of the data reflects both HMRC’s systems and the fact that the 2015/16 numbers were distorted by the introduction of new dividend tax rules in the following year.
  • Typically, they are male aged 45–54 based in London, with an additional £550,000 of income. To quote the IFS, the 1% club is “disproportionately male, middle-aged and London-based”.
  • They live in 10% of the 650 parliamentary constituencies, which contain half of the top 1% population. In 2000/01, 78 constituencies were needed to reach the halfway mark.
  • They have over a quarter of their income made up from partnership and dividends, as the pie chart shows. This reflects the fact that many are business owners.
  • They manage fluctuating income levels. The top 1% is not a stable group, which may be some solace if you do not currently have the necessary membership credentials. The IFS found that roughly a quarter drop out each year and only half remain for five consecutive years. The corollary is that there is a much higher chance of being in the top 1% at some point in your life than in any given year. The IFS calculated that 3.4% of all people (and 5.5% of men) born in 1963 were in the top 1% at some time between 2000/01 and 2015/16.

However, being a member of the 1% taxpayers club also means accounting for 27% of all income tax collected by HMRC. So failing to qualify may reflect some careful and expert financial planning…