IFS Thresholds Report

An Important new IFS report explains and examines the thresholds built into the income tax system, such as the Personal Allowance and the rate bands and the tapering of the allowance on incomes over £100,000.

It highlights the problems present for these taxpayers. Exceeding a threshold may make a taxpayer materially worse off – thresholds create economic barriers. It calls on policy makers to take particular care to minimise the occasions (ideally avoid them completely) where exceeding a threshold makes a taxpayer materially worse off, where the rational response is to reduce income. There may be no easy solutions.

The paper mentions the high marginal rates that result from the overlap between the benefit system and the tax and NIC systems which affects a large number of taxpayers and which may be having significant economic effects.

You can view and download the full report on the IFS website here:

https://ifs.org.uk/publications/thresholds-tax-system-policy-and-administrative-considerations