MILLIONS of higher earners will be worse off from next year because of a stealth change to income tax.

Everyone earning more than £40,355 will lose out because of the government’s changes to tax and national insurance contributions (Nics) from April 2009, research from the Institute for Fiscal Studies revealed last week.

The figures will come as a surprise because the government has billed its income-tax changes as a boon for hard-work-ing families. Until now, it had been thought that higher earners would be among the main beneficiaries.

The basic rate of income tax will be cut from 22% to 20% from this April. The upper limit for 11% Nics is also going up from next month, but most higher earners will still be better off. Next year, however, the benefit of the basic-rate tax cut will be wiped out by another hike in the upper Nics limit.

James Brown of the IFS said: “If you look at the additional increase in the upper earnings limit and the higher-rate tax threshold due to come in next year, it turns out that everyone with incomes over £40,335 will be worse off than they would have been had none of last year’s reforms been introduced – although only by small amounts.”

While the tax hike may be small – up to £88 a year, according to the IFS – families are already facing a big increase in their road tax following Alistair Darling’s first budget last week. Household bills for energy and food have also soared by as much as £1,700 over the past 12 months, so families can ill afford a tax hike.

Angela Beech of accountants Blick Rothen-berg said: “While the basic-rate tax cut was good news, it is easy to forget that national insurance contributions are going up and we are all going to be worse off in real terms than if the government had done nothing. When you take into account the fact that household bills are soaring, it is no wonder that people are feeling worse off.”

Hannah and Richard Wylde are typical of the middle-class families who are hidden budget losers – they will be £87 a year worse off from April this year. While Richard, a 34-year old sales executive from Worcester, will be better off by £187 in April because of the cut in basic-rate tax, his wife Hannah will be £27 worse off.

She is a part-time marketing director earning less than £16,000 and will therefore be hit hard by the removal of the 10% starting rate of income tax, which comes alongside the basic-rate tax cut in April.

The family are not be eligible for tax credits due to the size of their combined income. They will also be £220 worse of because of the rise in fuel duty from October and £28 worse off from the rise in alcohol.

Hannah said: “Our childcare costs are astronomical. You can see why lots of women don't do it – there’s been no incentive on my income tax from the government. I’ve been disappointed as well that I’ll be worse off in terms of how much I will need to contribute to my personal pension.”

Families such as the Wylde’s face a raft of tax grabs hidden in the small print. We trawled through the budget book to high-light the hidden changes.

Company car tax grab

While the new “showroom” tax of up to £950 for polluting cars grabbed all the attention, the fine print revealed another blow for drivers. Up to 3m workers with company cars could be up to £500 a year worse off because of hikes in the tax on the benefit, raising £80m a year for the Exchequer from 2010-11.

The chancellor sneakily changed the way the tax on company cars and free fuel provided by employers is calculated. A higher-rate taxpayer with an Audi A6 diesel TDi SE, for example, will have to pay an extra £543 a year in tax by 2010, according to tax firm Deloitte. This includes an extra £188 tax on the benefit and £355 on their “free” fuel.

Company car drivers are being urged to switch to greener models or consider cash payments from their employers instead to beat the tax grab.

Wealthy investors in ‘useless’ bonds

Hundreds of thousands of wealthy savers with bonds run by life insurers are being urged to review their investments after the chancellor refused to offer concessions on his capital gains tax changes.

From April, the CGT on most investments, including unit trusts and main-market shares, will drop from a minimum of 24% for higher-rate taxpayers who have owned them for 10 years or more, to a flat rate of 18%.

However, investment bonds run by life insurers are still taxed at 40% if you are a higher-rate taxpayer when you cash them in – as many as 200,000 people could be in this position, according to insurer Standard Life.

Someone who invested £150,000 in a bond over 10 years could end up £4,000 worse off compared with putting money in unit trusts, the insurer said.

The figures have raised fears that bonds run by life insurers could now be mis-sold.

Andrew Fisher of adviser Towry Law, said: “I believe life-insurance bonds have been killed by the CGT changes. Everyone should be reviewing their investments to check they are still right for them.”

Pension savers pay more

Another consequence of the changes to basic-rate tax is that pension relief goes down. Pension firms are automatically increasing contributions as a result, meaning millions of people will see more come out of their pay packets from April. A basic rate investor contributing £300 a month – or £3,600 a year – for 30 years would find themselves with £5,142 less in real terms in their pension pot if they did nothing.

To ensure they end up with the same pension in retirement they would need to increase payments by £6 a month – £72 a year.

Taxpayers face dawn raids

The taxman will be given the right to turn up at taxpayers’ homes from next year, under proposals hidden in the budget. Anyone who carries on a business at their premises, including the self-employed and even online traders, could face a dawn raid under a vast extension of the Revenue’s powers.

Bereaved families who make a mistake when declaring how much they owe in inheritance tax (IHT) could also be unwitting victims of the plans.

A new penalty regime will apply to income and CGT from next month, and the government wants it to be applied to IHT from April next year. Accountants warn that many who would pay nothing under the current regime will face a fine under the new rules.

At the moment, if you are late paying the tax there is an automatic £100 fine and a daily penalty of up to £60, but as long as you havea reasonable excuse you pay nothing. From April next year if you “fail to take reasonable care” there could be a 30% penalty.

KEY MEASURES AT A GLANCE

SIN TAXES

- Cigarettes up 11p a packet of 20; five cigars up 4p.

- Beer up by 4p a pint, wine 14p a bottle, spirits 55p a bottle and cider 3p a litre today.

- Duties on alcohol will go up by 2% above inflation in each of the next four years.

- From 2009, there will be major reform of the vehicle-excise duty. For new cars from 2010, the lowest-polluting models will pay no road tax in the first year, with the highest polluters paying £950.

- 2p increase in fuel duty postponed until October.

- Fuel duty will rise by 0.5p per litre in real terms in 2010.

HOUSING

- From April, key workers, such as teachers and nurses, will be able to borrow money from shared-equity schemes.

- Stamp duty on shared-ownership homes will not be required until people own 80% of their home.

PENSIONERS

- Winter-fuel allowance will go up from £200 to £250 for the over 60s and from £300 to £400 for the over 80s.

BENEFITS

- From April, 2009, child benefit will be increased to £20 a week.

- A family with two children earning up to £28,000 a year will be £130 a year better off. A further £125m to be spent over the next three years to help families.

ENVIRONMENT

- Laws will be introduced by 2009 to tax plastic bags if shops do not do more to charge for their use.

- £26m to help make homes greener.

- 5m customers on prepaid meters should get a better deal. Energy companies should spend £150m on social tariffs.

SAVINGS

- The government will launch the “savings gateway” nationally with the first accounts available by 2010. The government matches all contributions in these schemes.

- Cash Isa limit confirmed as £3,600 a year from April and £7,200 for equity Isas.

NON-DOMS

- In a climbdown, income and gains in offshore trusts will only be taxed when they are remitted to the UK, even if these come from British assets.

- Children will not pay the £30,000 charge.

- The charge will be creditable against foreign tax.

- People with unremitted offshore income and gains of under £2,000 will be exempt, up from £1,000 previously.