Article by Phil
The tax burden continues to increase warn Financial Consultants.
New figures have emerged which show that more than 20% of taxpayers will pay higher rate tax by 2027. That’s nearly 8 million people. Four times more than in 1990. To give an example of what this means. Over 25% of teachers will pay higher rate tax, 40% of police officers and 15% of nurses.
The reason for the increases is the freezing of tax allowance bands. This creates tax increases by stealth. The freeze has been in place for the last six years now.
Almost 2 million people will be paying the highest rate of tax which is 60%.
At the same time as increasing the tax burden the government are also slashing tax relief on capital gains tax. As well as increasing tax on dividends.
It seems that people are trying to mitigate their tax burden as much as they can, with help from their Financial Consultants. Through pension contributions, which saw increases in contributions over 50% in the last Quarter and ISA’s which saw their highest influx of cash investments in March.
FT Adviser (20/4/23) provided the following example of potential benefits from increased pension contributions.
“Example: Turning an income tax deduction into a pension contribution
Alex earns £55,270:
- The first £12,570 is covered by the personal allowance.
- The next £37,700 is subject to income tax of 20 per cent.
- The remaining £5,000 is subject to income tax of 40 per cent.
Alex makes a gross pension contribution of £5,000 (£4,000 paid by herself and £1,000 added by the government by way of basic rate relief). She claims the extra 20 per cent tax relief through her self-assessment tax return.
Alex’s gross pension contribution of £5,000 therefore effectively cost her £3,000.”
Then there’s the issue of ever-increasing Inheritance Tax (IHT) contributions.
With no change to the bands since 2009 the tax take has been steadily rising as house prices have increased. Especially in the South. There are now calls from some Conservative MP’s led by Liz Truss alongside many Financial Consultants, for the party to scrap IHT altogether. This may never happen, but it might come as a relief to hard pressed taxpayers saddled with the highest tax burden in living memory.
At the same time HMRC have also increased the penalty interest rate on late payments from 3.25% up to 7%. This will affect almost 1.5 million people.
Plus, they have issued over 500,000 late payment charges, recovering £180 million.
In further bad news. 1.3 million people are expected to come to the end of their existing fixed rate mortgage deals. Most were under 2% but their new rates will be at least 5.5% due to the base rate increases over the last year. This is likely to increase average payments by £200 a month.
The Office for National Statistics (ONS) estimates that 650,000 of these people do not have enough savings to fall back on. It’s thought that over 300,000 people will not be able to afford their new mortgage payments.
But rates could always come down in the coming months.
None of this is helped by the announcement the government intends to disband the Office of Tax Simplification, set up in 2010. The tax code currently runs to 11,000 pages and there are 1,800 different forms of tax relief. No wonder over 3,200 millionaires left the UK in the last 12 months. The tax burden is simply too high. Even the editor of the Spectator noted that one of his friends had left the UK to become a tax exile in Italy of all places.
The tax burden is a real problem.
