Don’t just sit there, take action!
There are two deadlines on the horizon and you need to act before both to make the most of your available tax allowances.
Deadline 1: 5 April – five weeks to go till tax year end.
Deadline 2: The General Election, probably in the Autumn… but with the government jumping from one disaster to another, who knows when this might be!
Tax as a share of national income is soon to hit a postwar high. It increased a lot under the current Conservative government and I think a Labour government will continue this upward trajectory.
Watch our short video to see what taxes are important to the government and what actions you can take.
For a transcript of the video, keep reading:
In this video we’re going to talk about tax. We’ve got five weeks to go till tax year end, so not long to go to make the most of your allowances this year. Hector here on the screen, you might recognise him from the TV adverts a few years ago, has been very busy as the government’s tax as a percentage of GDP has really gone up a lot and I think is only going to carry on going up too.
The one thing about tax that’s on the horizon is the General Election and if we look at the betting which I think is the best place to look, is odds on that we are going to get an election this Autumn and more to that, it is odds on that Labour are going to get the most seats and, crucially, a majority. And Labour’s sales pitches will be to tax the rich because they are the ones with the money.
So where does the government get their revenue from? The biggest one is income tax and adding National Insurance and VAT is nearly two thirds of the government’s revenue. CGT, capital gains tax, is about 2% and inheritance tax is less than 1%. Corporation tax is around 4.5%.
Now when you have those levers, the government might think they can tweak them to bring more revenue, but also the law of unintended consequences means if they get it wrong and it backfires, they can actually lose a lot.
In terms of taxing the rich, we’re looking at the top end of this scale. These are the income distributions from the Office of National Statistics a couple of years ago where you needed to earn £57,000 then to be in the top 10% of earners, round that up a little bit, let’s call it £60,000 today.
I was surprised, that’s quite a low figure I thought to make it into the top 10% of all earners. And the top 10% is important because, again figures from the ONS, those two top bars on the right-hand side, the top 1% and the next 9% already pay 60% of all income tax. That’s a heavy burden for those people to incur and I think that’s just going to carry and the government will carry on freezing those thresholds if not putting limits up. So the burden on those people at the top end of the scale is only going to carry on getting worse.
So we need is this, we need an action plan. And in summary, I think the action plan is this: you’ve got to use all of your tax allowances now in the next five weeks and you’ve also got to use them AGAIN as soon as possible a new tax year because although the election betting is it’s going to be in the Autumn, it is not worth the risk of waiting. The government just seem to be lurching from one disaster to another and you never know what the next disaster might be. It could have to call a snap election which they will probably lose, all hell could break loose, and you’ve just got to use your allowances, it’s not worth the risk of waiting.
So what can we do? We’ve got ISA allowances of £20,000 per person, it’s a use it or lose it, it doesn’t roll over. Could labour reduce or change this? Yes, I think they could. There are far too many ISAs, it’s far too confusing. Labour could come in and say that they want to sweep away that complexity and by virtue of doing that, reduce the allowance maybe back to £10,000 or £15,000.
Capital Gains Tax allowance. Well, that’s currently £6,000 and we already know that’s going to halve to £3,000 pounds in a few weeks’ time. This is a problem, it’s not a great earner for the government but if you’ve got investment properties or investments themselves, they will probably have done so well in the last few years that you could be at on some sizable if not significant capital gains tax problems that need careful monitoring. Again, it’s a use it or lose it scenario. Could Labour reduce or change this? Yes, I think they could, it’s tinkering at the edges as far as their revenue is concerned, but I think a lot of people could be affected by it so watch this one carefully.
Pensions. Now there’s a £60,000 allowance of what you can contribute to a pension which is generous, very generous. You can get 60% relief on contributions when you’re earning between £100,000 to £125,000 and 45% relief over this amount. 40% relief around the Child Benefits threshold between £50 and £60,000 AND you get your Child Benefit as well, so that’s a real sticky one and if you can get that back, that will make a BIG difference. Labour could easily change most if not all of those rules. They’ve said they’re not going to, but who knows.
More on pensions. The Lifetime Allowance, just over £1 million is going to be abolished, but there’s a sticking point in that Tax Free Cash is going to carry on and stay stuck at a quarter of this figure of £268,000 so over time more and more people are going to be affected by this.
I think Labour could change some if not all of those rules simply because pensions are so tax efficient, they are by far the most tax efficient investment you can have in terms of putting money in, the tax treatment when the money is in there, taking the money out and that they are inheritance tax exempt. Very, very generous. Use that while you can.
Inheritance tax, the £3,000 and £250 limits on gifting are worth using, surplus income gifts is definitely underused and looking at inheritance that the bands are already frozen for another four years. Could Labour reduce or change this? Possibly. I’m always surprised that IHT only effects the top 4% of estates. So Labour could use that as the argument that they’re only taxing the rich more.
Dividends. There’s a £1,000 allowance now and we know it’s going to be cut to £500 in April, it used to be £5,000 so that is a big difference from five years ago. But every little helps so you’d better use it. Could labour reduce or change this? Possibly. It’s not going to make a huge difference to the government but it could make a difference to business owners and investors.
To recap, you’ve got to use all your allowances now. You’ve got to use all your allowances again as soon as you can in the new tax year, it is simply not worth the risk of waiting.
Any questions pick up the phone, talk to Adrian or I and do it sooner rather than later. Don’t leave this to the 11th hour, act now.
