The UK Government is forecast to take a total of £950bn in tax this year, approximately 36.9% of Gross Domestic Product (GDP), which makes this the highest tax burden the UK has faced since just after the Second World War. Tax is important as it helps pay for services such as schools, the NHS, and defence, along with other valuable institutions as well as the benefits system and State Pensions.
However, it is also your right to take advantage of the generous tax allowances available to reduce your liability to taxation – which many people simply do not use. Funds held outside ISAs and pensions can be subject to tax and last year these two simple tax-efficient wrappers helped the UK population save an estimated £23.6bn in tax.
Looking across the numbers, 2.7m are expected to pay tax on savings interest in 2023/24 – enough people to fill Wembley Stadium 30 times over! With higher interest rates, that means nearly a million more people than last year will be paying this tax. For many taxpayers, simply having savings of around £20,000 could result in tax being paid, and additional rate taxpayers do not even have a Personal Savings Allowance to help them cut the tax burden. Therefore, a Cash ISA has become far more effective than two years ago.
Dividend Tax is expected to raise about £17.6bn and Capital Gains Tax (CGT) is expected to raise another £16.5bn – combine these amounts and everyone in the UK could have the latest iPad. The UK Government has reduced the dividend allowance to £1,000, half of the previous stingy allowance of £2,000 – and they want to reduce this further to £500 net tax year. Capital Gains Tax catches a lot of people out, with the allowance now being £6,000 instead of the previous £12,300 – – yet again the Government intends to reduce this to £3,000 in the next tax year. So, all in all, there will be fewer allowances to go around.
Whether you are investing, saving, or simply earning money, tax is an issue – with many more people paying tax. To put the Income Tax situation into numbers, 29.4 million people are expected to be basic rate taxpayers, up 8%, 5.6 million will be higher rate taxpayers, up 41% in three years, and around 862,000 people will be additional rate taxpayers, up 99% in three years. With the Personal Allowance being frozen since April 2021 and the basic rate not increasing in line with inflation since April 2022, more and more people are being dragged into paying more and more tax unwittingly. Moreover, the additional rate threshold is being reduced to £125,140 in April 2024 for the new tax year.
So, now is the time to make the most of the allowances that are currently on offer, to ensure your hard-earned funds are not being eroded by tax.
There is plenty of time to make use of your ISA allowance – either Cash or Stacks & Shares – and a personal pension contribution could result in up to 45% tax relief from the Government.
Please contact us if you would like some help making use of your allowances before the end of the Tax Year – remember, if you do not use them, you will lose them forever!
