Millions of new taxpayers will be created by the extended freeze on income tax thresholds, whilst others will find themselves subject to higher rates of tax for the first time.

In the Autumn Statement, the Government froze the thresholds until 2028 – two years longer than previous Chancellor, Rishi Sunak, had planned to.

The Personal Allowance will remain at £12,570; tax is payable on earnings exceeding this threshold, at either basic rate (20 per cent) higher rate (40 per cent), or additional rate (45 per cent).

The threshold for paying higher rate tax has also been frozen at £50,271. However, the threshold at which taxpayers begin to pay additional 45 per cent tax has been reduced from 6 April 2023, from £150,000 to £125,140.

It is also worth noting that as it stands, in respect of income received from dividends, an individual’s tax free Dividend Allowance will fall from £2,000 to £1,000 from 6 April 2023, and be reduced down to £500 from 6 April 2024.

In what has been described as a stealth tax, the freezing of thresholds is likely to lead to many taxpayers being fiscally dragged into higher tax brackets by inflation, along with rising wages.

Even with things as they are, it is possible to mitigate your tax liabilities simply by being savvy about the allowances and tax-efficient strategies you have at your disposal.

Pension top-up

You can reduce your income tax liability by topping up your pension, using your annual tax-free allowance. Personal pension contributions within the annual £40,000 pension allowance lower your ‘adjusted net income’, which is what HM Revenue & Customs (HMRC) uses to calculate your tax bill.

ISA allowances

Individual Savings Accounts (ISAs) are, for many people, a tax-efficient way of saving money. The current investment limit is £20,000 per annum.

Income tax or Capital Gains Tax (CGT) is not payable on investments held within an ISA, and you can withdraw funds freely without generating a tax liability.

The clue is in the name, but it is worth noting that an ISA account cannot be held in joint names.

Increase your tax allowance

If you are married, or in a civil partnership, your tax allowances can be combined in some instances. This serves to increase your households income tax allowance.

For example, the Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife, or civil partner, provided you do not pay Income Tax, or your income is below your Personal Allowance, and your partner is a basic rate taxpayer.

This is a pertinent point to make since, as aforementioned, more individuals are likely to find themselves in a higher tax bracket.

How can George Hay help?

We are always advocates for proactive tax planning, and of utilising the allowances and reliefs that are available to you to mitigate your liabilities and keep more of what you earn.

If you need support to identify tax-saving opportunities, or to understand what the Government’s plans mean for your tax position, contact our team of professionals in Bedfordshire, Hertfordshire or Cambridgeshire.

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