Chancellor Kwasi Kwarteng announced during his fiscal statement on 23 September 2022 that the additional tax rate of 45% will be removed.
The additional rate on annual income over £150,000 will be abolished from 6 April 2023, a move that will also abolish the additional rate for dividend tax.
Kwarteng said:
"From April 2023, we will have a single high rate of income tax of 40 per cent. This will simplify the tax system and make Britain more competitive.
"It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and the whole country."
As of next April, all annual income above £50,270 will be taxed at 40%, meaning around 660,000 people will benefit from a tax cut, lowering the tax take for 2023/24 by £625 million.
A flurry of tax cuts
Getting rid of the additional rate for dividend tax will benefit around 2.6 million taxpayers with an average saving of £345 in 2023/24.
The Chancellor also announced the slash to the basic rate of income from 20% to 19% would be brought in from April 2023 - a full year earlier than anticipated.
The chancellor also reversed the 1.25 percentage point rise in National Insurance, as well as the health and social care levy, which was scheduled to replace the rise in April 2023.
The 1.25 percentage rise in dividend tax will likewise be reversed, meaning ordinary and upper rates of dividends tax will be reduced to 2021/22 levels of 7.5% and 32.5%, respectively.
Reactions
Although the news of the tax cuts will be welcome to many higher earners across the country, the fiscal statement has been met with scepticism by industry professionals.
Torsten Bell, chief executive at the Resolution Foundation, said:
"His [Kwarteng's] decision to combine the largely unavoidable higher deficit caused by rising energy prices and interest rates with permanent tax cuts will drive up borrowing by over £400 billion in the coming years.
"No Chancellor has ever chosen to permanently increase borrowing by so much.
"Without significant cuts to public spending, debt will be on course to rise each and every year. This is not what sustainable public finances look like. Every scrap of Treasury orthodoxy has been torn up," he added.
Ben Francis, Wales policy chair for the Federation of Small Businesses, was more welcoming of the Chancellor's Budget, commenting::
"The growth plan announced today will go some way to ease the burden small businesses have been facing. We are pleased to see many of our calls heeded, including the decision to reverse the NICs hikes introduced in April.
"Reversing all four, employer, employee, self-employed, and the dividend equivalent, is the right decision, as is the scrap of the corporation tax increase. This will provide some crucial breathing space for firms."
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