Credit Markus Winkler at Unsplash
The number of people paying tax at every rate is going up this year. This shouldn’t surprise anybody; when thresholds are frozen or reduced, and wage inflation is running at 7.2%, everybody is getting pushed into higher tax brackets.
According to HMRC’s figures[1], it expects the numbers paying Additional Rate tax at 45% to increase from 555,000 to 862,000 and those paying at 40% to increase from 5.28 million to 5.59 million. With the number of Basic Rate tax-payers increasing also, an extra 1.3 million people are due to become tax-payers.
For as long as this government thinks that the only people who need tax breaks are those with the largest pension savings then the number paying higher rates of tax is only going in one direction.
We can’t escape this, but what can we do about it? Two readily available solutions are:
o Make use of the annual ISA allowance
o Make pension contributions
There are other more complex options, which are not suitable for the majority of clients, but can be worth exploring for those who have made full use of their ISA and pension contributions.
Any way of saving tax has complications, and it’s important to maintain access to freely available cash, and not take more investment risk than you can afford.
If you are wondering how best to balance your desire to reduce your tax bill with your ability to save and your need to have access to your savings, just get in touch.
This article does not constitute advice, and no action or lack of action should be taken as a result of what is written. You are strongly advised to consult your financial adviser before taking any action relating to the matters discussed in this article.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on your individual circumstances.
The Financial Conduct Authority does not regulate tax advice.
[1] https://www.gov.uk/government/statistics/number-of-individual-income-taxpayers-by-marginal-rate-gender-and-age