Quilter have received the latest tax figures from HMRC from their latest Freedom of Information request. They make interesting reading and may help to clarify pension tax advice.
Following the last budget in autumn, the current Conservative government has now the got the dubious honour of creating the tax highest burden in history. By not moving income tax bands, the government has created an increase in fiscal drag which pulls more people into higher tax bands.
By 2027, HMRC forecasts that 1.1 million people will be pulled into the higher tax bracket. That starts at £50,271 up to £150,000 in salary. In addition a further 300,000 people will be pulled into the additional tax band which starts at salaries over £150,000. The current higher rate of tax is 40% and the additional rate is 45%. So, under the Conservatives a further 1.4 million people will be paying the highest rates of tax. Not surprising then that the richest 10% are now paying 53% of all the tax collected.
With the effects of inflation, the increased tax rates means that those affected are not likely to see any increase in their spending power over the next four years. Despite their salaries increasing, because of the tax rises.
That doesn’t look like it will create much incentive for people to join the ranks of middle and senior management.
The self employed won’t fare any better either. Corporation Tax is set to rise form it’s current rate of 19% up to 25% from this April. That’s an increase of 31%. Again, hardly an incentivise to invest in growth.
Quilter have calculated that over the next four years someone on £50,000 will pay an extra £6,434 in tax. Their suggestion is that pension tax advice might be to pay more into a pension in order to offset the contributions and pay less tax.
That might help, but it looks like high taxes are here to stay unless the next government does something about it.