British households could be paying £3,000 more in tax each year by 2026 as a direct consequence of budget measures introduced since Boris Johnson became prime minister in 2019. This is according to an analysis conducted by the Resolution Foundation think tank.
If you’re like most people, you are likely concerned about the impact such a large tax rise could have on your finances. Don’t panic just yet, as there are things you can do to cut your tax bill.
How are Budget measures affecting taxes?
Although several tax cuts were announced during the most recent Budget, including business rates discounts, reduced alcohol duty and a fuel duty freeze, several big tax hikes are on the way for Brits.
For example, National Insurance and Dividend Tax are rising in April next year by 1.25%. Corporation Tax is also set to rise from 19% to 25% from April 2023.
According to the Resolution Foundation, taxes as a share of the economy will soar to the highest level since 1950 by 2026-27. This amounts to a £3,000 increase per household since Boris Johnson came into office in 2019.
The think tank says that higher taxes will largely fall on middle- and higher-income households.
By 2025-2026, the combined impact of budget policies since Boris took power will increase the incomes of the poorest fifth of households by 2.8%. But middle-income households will see their income take a 2% hit, with the richest fifth seeing theirs reduce by 3.1%.
How can you reduce your tax bill?
Have recent budget measures including the planned tax hikes left you worried about your finances? You are not alone.
The good news when it comes to tax is that there are a couple of lawful approaches you can use to reduce your bill and keep more money in your pocket.
1. Check that your tax code is correct
If you are a PAYE employee, your tax code is used by your employer to work out how much tax to deduct from your pay. You can find it on your payslip.
If your tax code is wrong, you could be paying more tax than you need to. That’s why it’s a good idea to check your code every year and after every change of employment to make sure it’s correct.
If you believe your tax code is wrong, contact HMRC immediately so that they can provide your employer with the correct tax code.
2. See whether you qualify for tax credits
Tax credits are tax-exempt state benefits that give additional cash to disabled workers, people who care for children, and those on low incomes.
The two main tax credits are Working Tax Credit and Child Tax Credit. You may qualify for either or both depending on your circumstances.
More information on these credits, including how to check your eligibility and how to apply, can be found on the gov.uk website.
3. Make full use of your ISA allowance
An ISA is a government-approved tax wrapper that you can use to shield your savings or investments from tax. Any returns from savings or investments held within an ISA are tax free.
There are different types of ISAs, including cash ISAs and stocks and share ISAs.
At the moment, you can save or invest a maximum of £20,000 per year in an ISA. You can put your money in one type of ISA or spread it across several types as long as you don’t exceed the total allowance of £20,000.
4. Pay into a pension
When you pay into a pension, the government will top up your contribution as a way of encouraging you to save for your retirement. This is usually in the form of tax relief. The relief is provided on your pension contribution at the highest rate of income tax that you pay.
5. Take advantage of Marriage Allowance
Marriage Allowance permits couples or people in civil partnerships to transfer £1,260 of their personal allowance to one another. So, if you have exceeded your own personal allowance, you can ask your partner to transfer some of their allowance to you. If you use the full allowed amount, you can save approximately £250 a year in tax.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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