Article by Christina
A recent report by Financial Consultants looking at UK tax has found that the average worker will now pay 25% of their salary in tax.
This is across a range of taxes including income tax, national insurance, VAT on purchases but also more hidden taxes like energy tax and fuel duty.
The frozen tax allowance limit is only making things worse for workers. Allowances were frozen in 2021 which means that by 2028 HMRC will receive an extra £40 billion in tax due to the freeze. It will also mean that four million people will be brought into the tax regime. These are low paid workers who currently don’t pay any tax.
There are also big regional variations in the amount of tax paid. London not surprisingly is top of the tax list. On average they pay almost £12,000 in tax every year, compared to Newcastle for example where the average is £8,500.
Whilst not expecting any sympathy, the highest earners are paying even more tax than last year. Often ignored by politicians because it doesn’t suit their narrative. The rich really do pay the most tax.
Did you know for example:
- The top 100,000 taxpayers in the country pay 25% of all HMRC’s tax revenue from income and capital gains tax. Despite representing just 0.3% of all taxpayers.
- These top earners pay an average of £560,000 in tax every year. Up a massive 18% on last year and 45% up over the last 5 years.
- The top 100 taxpayers pay £4.6 billion in tax between them! Up 14% on last year. That’s £46 million a year in tax each. Wow.
Is it any wonder that over 3,000 millionaires leave the UK every year.
However, the tax burden is set to fall next April however, following the promised 2% cut to National Insurance contributions in the Autumn Statement (22/11/23).
Despite paying record levels of tax however, workers are not making the most of their remaining wages.
According to Hargreaves Lansdown over £250 billion is sitting in UK Bank accounts which pay no interest. That money could be earning over £13 billion a year in interest. Seems we’re all a bit lazy when it comes to saving:
- Over 25% of people have never switched their bank accounts.
- 50% said they would never even think about it.
- 30% because they “trust” their bank and then
- 27% because they think they already ger the base rate and
- 17% because they don’t want the hassle.
With the reduction in inflation, interest rates are becoming more attractive, so it is worth shopping around.
It’s also never been easier to switch accounts, especially since the FCA wrote to Banks earlier in the year to instruct them to pay more interest. In their latest update the FCA say that over £11 billion has now been moved out of non-interest bearing accounts. That’s a good start. They also say that a further £17 billion has been moved into higher interest notice accounts.
Some Financial Consultants think that the high tax bill and complicated tax system means that demand for advice will increase. It may do but there is still a huge underlying issue with adviser numbers. There are only 28,000 advisers in the UK currently. If an adviser typically worked with 100 – 150 clients that means that only 4 million people able to access advice. Less than 5% of the population. It’s set to get worse as well with 50% of advisers intending to retire in the next five years.
If you have a Financial Consultant keep hold of them!
One knock on effect of high taxes is more people renting. According to the latest research almost 2 million homeowners have or would consider using equity release on their property to help out their children. 41% said they would use the money to help pay a deposit for their children to get on the property ladder. With the average amount borrowed just over £50,000.
It also affects future pension savings for young people. Almost one in five young people hope to retire before they are 60 and over 70% before state retirement age at 67. But according to Legal & General under 30’s would need to save an extra £300 a month on top of an 8% salary contribution to make this happen.
