A couple of years ago, the chancellor told us that the level at which we’d pay Income Tax would be frozen at £12,570 until April 2028 thus dragging more and more individuals into paying tax. Alongside this we have seen:
- State pensions increasing in line with inflation
- The Bank of England holding the interest (base) rate at 5.25% for the last few months despite inflation falling
- More attractive savings rates
- Improvements in annuity rates
All of which ultimately contribute to what is known as ‘fiscal drag’.
In addition to the ‘personal allowance’ being frozen at £12,570, the income bands at which we are liable to 20%- or 40%-Income Tax is also frozen until April 2028 (and the 45% income band is much lower than it was).
The effect of all of the above will increase your average tax rate. To counter this, ensure
- Income (and pending capital gains) are arranged between spouses’ tax effectively
- You are making use of your ISA allowances to generate tax-free income and gains
- You are claiming higher rate tax relief on pension contributions and gift aided charitable donations
- You are maximizing your loss claims – whether they have been realised through difficult trading conditions or are generated through an unquoted investment turning sour
- With the help of an investment adviser, invest in ‘Venture Capital Trusts’ to realise tax free dividend income and/or subscribe for shares in Enterprise Investment Scheme investments which – if all the conditions are met, could generate a 30% tax refund.
If you would like to discuss your tax burden and how it might be improved, call one of our friendly tax advisers here at CKLG on 01223 810100. Alternatively, if you are aware that you might now owe tax on savings income (for example) having not been required to submit tax returns previously, call us to discuss how to put the record straight.
