
In a world where money allows us to cover basic needs and offers many people a safety net when things go wrong, it is perhaps not surprising that it also has the power to create problems.
Taxes on the rise: A certainty, not a possibility
Post 4 July 2024 elections, we may have the UK Labour Party as our governing party, but the future rises of tax are inevitable. For the foreseeable future, the freeze on most tax thresholds is likely to remain in place.
The thresholds’ freeze means that even moderate pay rises push taxpayers into higher brackets, effectively increasing their tax burden without any formal rise in tax rates.
This stems not only from the specific pledges of the main parties but also from the broader economic assumptions that have been made.
Many anticipated spending cuts have been factored into budget forecasts, which will likely boost the Government’s need for higher tax revenues.
Without significant economic growth in the short term, the new Government will face a tough decision between making deep spending cuts or raising taxes.
The trilemma
One may wonder why this scenario must be the case and whether it might be avoided. However, as the Institute for Fiscal Studies put it before the election any Government would face the same “trilemma”.
Speaking to the BBC, Paul Johnson, Director of the IFS, said: “Huge decisions over the size and shape of the state will need to be taken, that those decisions will, in all likelihood, mean either higher taxes or worse public services”.
The IFS says that only three options exist for the Government: “Raise taxes by more than they have told us in their manifesto. Or implement cuts to some areas of spending. Or borrow more and be content for debt to rise for longer.”
Preparing for the future
Taking care of and protecting your wealth is something worth prioritizing. Considered advice, from a professional tax adviser, can help you do just that and eliminate certain problems before they happen.
It is true that some people measure their wealth, and happiness, based on the size of their investments. As a Zimbabwean born national, I have seen close relations fall victim to a ‘hyper-inflation’ that took place between 2007 and 2008. Decades of savings were depleted to a nominal value. I can, therefore, relate to the agony of being deprived of savings, no matter how it is attained; whether earned, inherited, or gifted.
Certainly, in today’s modern world, it is so often the case that our mental wellbeing is linked (at least in some way) to our financial wellbeing.
Whilst you’d typically approach a therapist or counsellor for issues relating to your mental wellbeing, do you consider a tax adviser to be the equivalent for your financial wellbeing?
We are not a financial adviser so cannot advise you on how and where to invest, but as tax advisers, we can help you to consider the most tax efficient ways to structure your investments and savings. If tax is due, tax must be paid, but why pay more when you could pay less with careful tax planning.
We may not be able to save a marriage, but we can listen and advise you on how best to protect your hard-earned assets and investments. For example, if you are moving out of your marital home, we can discuss the CGT implications of this, and talk to you about the impact of Principal Residence Relief.
We may not be able to eliminate the challenges associated with your children thinking they have life all figured out, but we can support you with IHT tax planning and creating trusts to protect your assets and your children until they are mature enough to utilise these.
We can’t prescribe anything for sleepless nights, but we can assist you to ensure that you are fully compliant with the requirements of HM Revenue & Customs (HMRC). The TV presenter Lorraine Kelly may have eventually won her £1.2m tax case against HMRC over ITV work but it was a long battle. Whilst the others like Christa Ackroyd former BBC presenter were not so fortunate as they lost their battle with HMRC and were ordered to pay more than £400k in unpaid tax which was backdated from 2006/07.
Post-election, tax liabilities look poised to increase – by how much is now the question. As accountants, our role is to help you navigate these changes, ensuring you’re properly informed and prepared.
Please get in touch for more information or tailored guidance on this issue.