The new tax year opens against a backdrop of the ongoing pandemic, the war between Russia and Ukraine and economic uncertainty. Peter Webb, our Head of Tax Advisory, looks at the key tax changes to be aware of and what steps you can take to reduce their impact.
It’s safe to say that a lot has happened since Rishi Sunak’s Autumn Statement – the time of year where we usually hear about future tax changes. So it was no surprise that some of the announcements from the Spring Statement were the direct result of where we find ourselves; facing rising inflation, the ongoing war in Europe and the cost of living crisis. In short the Chancellor warned us that pain cannot be avoided. The tax burden, the effective amount of tax we all pay, is now set to hit its highest level since the Second World War.
Our recent webinar explored the tax changes for the new tax year, and what could be coming in the future.
Missed the webinar?
Watch it here
With such a turbulent state of affairs, coupled with extraordinary energy price rises in the UK coming into force, this new tax year comes fresh on the heels of a few announcements. The key changes to take account of include:
- National Insurance – an increase of 1.25% comes into force although there is some relief from July when the level at which you start paying rises to £12,570.
- Dividend Tax – rates will increase by 1.25% as part of a package of measures to fund the costs of social care and the NHS.
- Tax allowances – these remain frozen, effectively increasing the amount of tax you pay.
- Pension savings allowances – the total amount you can hold in your pension without being taxed on withdrawals is also frozen for this tax year and into 2026.
- Fuel Duty – a reduction of 5p per litre comes into force but it’s worth remembering that fuel duty represents a not insignificant 3.5% of the Government’s tax receipts. Given the climate crisis there have been calls for more sustainable options to be promoted rather than encouraging petrol and diesel drivers.
- Income Tax – in a very surprising move the basic rate of Income Tax will be cut in 2024. The timing here is the key factor as it will come in the 24/25 tax year ahead of the next general election due on 3 May 2024, thereby allowing Rishi Sunak to retain his credentials as a tax cutting Chancellor.
What are the possible future tax changes?
It’s clear that the Government may have to go further to help cover the costs of the pandemic; the bill currently stands at £410 billion. However there is no doubt a long-term view at play, and it’s worth remembering it took 100 years to pay for the First World War.
The areas of focus are likely to be Capital Gains Tax and Inheritance Tax alongside other options, such as introducing a flat rate tax relief of 25% on pensions which would significantly impact higher rate tax payers. There are also calls for wealth taxes, as seen in other countries. However with a general election in the not too distant future it’s also worth looking at how a Labour government would deal with tax. Recent comments from the Shadow Chancellor suggest that key targets would be wealth, stocks, shares and buy-to-let property although it’s clear that nothing is off the table and the tax system in its entirety would be reviewed. Non-UK domiciles are also likely to be a key target if Labour win a general election.
What can you do to protect yourself?
Higher rates of tax are coming so it’s important to take action. Stay up to date with what’s happening, diversify any investments so that you haven’t got all of your eggs in one basket and ensure that all members of your family are using their tax allowances including ISAs. Finally with Capital Gains Tax at historic lows it might be time to realise any gains ahead of possible changes in this area.
To discuss any aspect of your tax planning please contact your nearest office.