More people are paying higher tax – but there are ways to take back control

The latest figures from HMRC show that over seven million people are now expected to fall into higher-rate tax bands, a jump of nearly two-fifths compared to 2022-23. But while the numbers might feel worrying, Camilla Esmund, Senior Manager at interactive investor, the UK’s leading flat-fee investment platform, says it’s also an opportunity to take a closer look at how to make your money work harder.

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“It’s easy to feel like you’re losing ground when your salary goes up but so does your tax bill. This is what we call fiscal drag – where tax thresholds stay frozen but wages rise with inflation. People are pulled into higher brackets without necessarily feeling any better off. But there are practical steps everyone can take to take back control of their financial future.

“Making the most of your pension is a great way to claw back income tax and can even keep you below the higher-rate threshold. For higher-rate taxpayers it only costs £60 to pay £100 into your pension, whereas basic-rate taxpayers pay £80 to make a £100 contribution.

“However, for the thousands crossing the higher-rate threshold for the first time, understanding the rules is crucial. Some pension schemes, like SIPPs, only pay 20% relief automatically, you have to claim the rest through your tax return or by writing to HMRC. Thousands of higher-rate taxpayers lose out each year by missing this key detail.

“When it comes to your broader finances, you can’t always control tax thresholds or the pace of inflation, but you can choose how you save and invest – and that can make a real difference over time. Whether you’re new to investing, or a seasoned pro, maximising the use of Individual Savings Accounts (ISAs) and Self-invested Personal Pensions (SIPPs) is vital. As protective layers for your money, ISAs and SIPPs each have their own set of benefits (and make sure you’re picking the right ones for you), but investments held in these accounts will be shielded from tax, and this helps grow your money over the long term. Even small, regular contributions can build up significantly over time, especially when invested.

“Investing can feel daunting, but it’s one of the best ways to grow your money in the long run. Cash savings have their place, especially for short-term needs, but over time, inflation can eat into those returns. That’s why it’s worth considering the markets – especially if your goals are at least five years away.

“We want people to feel empowered, not overwhelmed. With the right tools and a bit of planning, you have a much better chance of feeling in control. It’s about taking small, thoughtful steps that build towards a stronger financial future.”