6 ways to avoid Rishi Sunak’s tax raid and Budget changes
RISHI Sunak launched a raid on tax payers in the Budget yesterday, including freezing the income tax and capital gains tax thresholds.
Although stopping short of tax hikes, over the years the stealth taxes mean a pay cut for millions of Brits once you take into account inflation.
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The Chancellor confirmed the personal allowance - the amount you can earn before paying income tax - will go up in in April but will be held at the same rare until 2026.
From next year, basic rate taxpayers the threshold will be held at £12,570 and £50,270 for higher rate tax payers.
The move will see an extra 800,000 people paying income tax and another 800,000 paying the higher rate, warns investment firm Hargreaves Lansdown.
The capital gains tax - what you pay when you sell something that's gone up in value - allowance has also been frozen at £12,300 until 2026 hitting profits as inflation levels go up.
Tax you pay on inheritance will also be held until April 2026, painting a bleak picture for taxpayers hoping to hold onto their cash.
But we've spoken to personal finance experts to find out what you can do to dodge the stealth taxes, or at least reduce what you pay. Here's everything you need to know.
1. Salary sacrifice schemes
Some employers offer salary sacrifice schemes, which is an agreement to reduce an employee's cash pay for non-cash benefits.
Often, these include benefits like a childcare vouchers, gym membership or a cycle to work scheme.
You don't pay tax on the portion of your wages that goes towards paying for these schemes, lowering the amount of income tax you pay overall.
Sarah Coles from Hargreaves Lansdown said: "The more you earn, and the bigger your pay rise over the next few years, the harder this will hit you.
"If you’re set for a pay rise, it means it’s well worth considering salary sacrifice.
"These schemes let you give up a portion of your salary, and spend it on certain things free of tax (and sometimes national insurance)."
2. Marriage allowance
Married couples can transfer £1,250 of their personal allowance between them if they earn below and above a certain threshold.
This will lower the amount of income tax they pay in the tax year.
To be eligible, one spouse must be a non-taxpayer - earning below the personal allowance threshold - and the other a basic rate taxpayer.
The amount is transferred from the non-tax payer to the basic rate payer.
3. Pay more into your pension
For higher rate taxpayers, paying into a pension scheme is a good way of reducing your income tax bill.
The government rewards pension savers with a tax relief worth 20% for basic rate payers and 40% for higher-rate payers.
It means some of the money that you would pay in tax instead goes into your pensions pot.
For example, if a basic rate tax payer contributes £100 from their salary, only £80 actually comes out and the government tops it up by 20%.
For higher rate tax payers, a £100 contribution actually only costs savers £60 and the tax relief brings it up by another £40.
Laith Khalaf, financial analyst as AJ Bell, said: "Your investment growth and income are then tax-free inside the pension, and you can take 25% of your total pot as a tax-free lump sum at retirement."
But he also warned: "The Chancellor did also freeze the pensions Lifetime Allowance at £1,073,100, so if you’re lucky enough to be bumping up against this, you need to think twice before adding more money to your pension."
4. Save into an ISA
"When taxes on income go up, the ability to get a tax-free income from your savings and investments is even more valuable," said Ms Coles, "and this is where ISAs come in."
An ISA is a tax-free savings account, and Brits can save up to £20,000 per tax year into one.
You can also withdraw cash from your savings account without paying tax.
5. Give gifts before you die
If you're worried about what you leave loved ones when you die being slapped with inheritance tax, you should think about giving it as gifts during your lifetime.
You can give away up to £3,000 a year without it being considered as part of your estate when you die, so you won't be charged inheritance tax on it.
"You can also give gifts of any size and as long as you live for seven years afterwards, it’s not counted as part of your estate," Ms Coles said.
6. Cash in shares over multiple tax years
Capital gains tax is charged on the profit you make when you sell something that has gone up in value, such as stock and shares, artwork or even a second home.
The first £12,300 of profit is tax free but after that you'll be charged up to 28% depending on what rate taxpayer you are and what you sold.
To keep below profits below the threshold and reduce your capital gains tax bill, you should try and cash in stocks and shares over multiple tax years.
Ms Coles said: "If you’re selling shares, and you have made more profit than this, one option is to spread the sale over more than one tax year, so you keep below the threshold each year"
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In his Budget, Mr Sunak also announced extra help for 600,000 self-employed Brits who have been shut out of Government support during the pandemic.
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It means they will be able to access the £7,500 in extra help that others have been able to claim.
Furlough has also been extended and will continue to cover 80% of workers' wages.