Taxing times

Dominic Thomas
Jan 2024  •  5 min read

Taxing times

Tax is perhaps one of the most divisive issues.  At the time of writing, just before the Christmas break 2023, the Scottish Government has announced that it is imposing the additional rate of income tax (45%) at a much lower level.  Unlike England and Wales, the Additional Rate will start at £75,000.

Here in England and Wales, the 45% rate starts at that “only a quango could come up with it” number of £125,140 for tax year 2023/24.  So someone earning more than £125,140 pays 45% income tax, but in Scotland the line is drawn much sooner.

By comparison, a Scottish resident earning £125,140 will pay an extra £2,507 on the same income. I doubt that the extra tax is enough to prompt thoughts about moving south, but it may well alter behaviour at the ballot box.

As a reminder, the tax rates for this tax year (2023/24) which comes to a close on 5th April 2024 are as follows:

Band Taxable Income Tax Rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571-£50,270 20%
Higher Rate £50,271-£125,140 40%
Additional Rate Over £125,140 45%

These are the income tax rates on earned income, not dividends (which have lower tax rates).

If you are breathing a sigh of relief because you live in England or Wales, remember that this tax year saw the Government reduce the higher rate band so that Additional Rate begins at £125,140 rather than £150,000.

Most of us have been impacted by inflation, yet the personal allowance remained frozen as did the basic rate tax band. So more people pay more income tax. This is what the media and whoever is in opposition, like to call “stealth taxes” basically an increase in tax in real terms.

Additional Rate tax was introduced in the tax year 2010-11, and saw 236,000 people pay 45% raising £34.5billion. Ten years later, the HMRC 2020-21 data saw this number increase to 481,000. There is no doubt that whichever way one observes the data produced by HMRC, we all pay more tax.

There are of course some things that you can do about reducing tax or even obtaining tax reliefs, these are all part of a good financial plan. However what I often observe is how little attention is paid to good arrangement of financial ‘stuff’ so that you can minimise tax payments. How much and where from become really important when drawing money from your portfolio. It’s one thing to get tax relief or use an allowance, it’s another to draw money out so that you pay less than 20% tax.

I recently produced a White Paper that you may find of interest called ‘Understanding Adviser Fees’, which includes and explanation about the value that we bring. Whilst I firmly believe that every little helps, if you focus purely on costs and ignore taxes, you will quickly wonder why you bothered. You can find the paper (which is designed to be readable – feedback welcome) here.

Taxing times2024-02-01T09:21:01+00:00

The November budget

The November budget

The problem of having a deadline for publication is that life tends to throw up some new important information just at the wrong time. The chaos of the ‘mini-budget’ resulted in a new Prime Minister and Chancellor. The Budget on 17th November was set to herald tax rises. So, what has been announced?

NOVEMBER – INCOME TAX

Tax thresholds have been frozen, save the additional rate of tax threshold, which now begins sooner, meaning that more people will pay 45% tax, starting at £125,140 instead of £150,000. What this means in practice for someone now brought into additional rate (earning £150,000) is that they pay 5% more income tax on their earnings above £125,140.  If you earn £150,000 you would pay £1,243 more income tax as a result of this change, (£11,187 as opposed to £9,944) effectively £103.58 a month more. Whilst politicians talk of short-term pain, the projections show this measure for 5 years.

NOVEMBER – CAPITAL GAINS TAX

Capital Gains allowances have been cut substantially, reducing from £12,500 to £6,000 from April 2023 and then to £3,000 from April 2024.  Trusts have a CGT allowance of half the personal allowance. So realising gains this tax year will be more effective than in future years.

As a reminder, this is the permitted gains on assets being sold with a 0% tax rate before being taxed at 10% or 20%, unless that asset is a second property in which case its 18% or 28%. So if you are a landlord, sell before April 5th to maximise your allowances.

I had expected the rates of tax to increase in line with income taxes rather than the allowance being altered and mostly scrapped entirely. In any event, capital gains tax allowance reductions makes your annual ISA, Pension, VCT, EIS allowances all even more attractive, sheltering funds from CGT in different ways.

NOVEMBER- DIVIDENDS

The Dividend allowance has also been slashed. This will mostly impact those with a small business whereby family members or staff can have a share of profits (dividends) tax free. The first £2,000 of dividends are currently tax free, this will reduce to £1,000 from the new tax year and then £500 in the next ..

NOVEMBER – PENSIONS

It would seem that there are no changes, which is frankly a bit of a surprise. The annual allowance remains at £40,000 unless you have income over £200,000 when a reduced (tapered) allowance would apply. The Lifetime Allowance has remained in place. If you are an NHS employee, I cannot find anything in the 70 page statement to help you with your annual allowance problems and there is nothing about the tapered annual allowance. So, sadly, more senior doctors will likely reduce their NHS hours or otherwise face tax charges on income that they have not had. We can help crunch the numbers, but if anyone is in a position to ‘get it’, Mr Hunt is but seems to have chosen not to.

NOVEMBER – STATE PENSIONS

If you are receiving your State Pension, it’s going to increase by 10% in April. If you haven’t started taking yours, well you are also likely to have to wait until you are much older to get one. Everyone knows this is a political ‘hot potato’ and the younger generations are unlikely to receive a State Pension until at least 68 (and this will probably be increased in the announcement in early 2023).

NOVEMBER – FEELING FROZEN?

You are going to need to ‘let it go’ … that is – hopes of seeing the end of frozen allowances ending any time soon. The personal allowance, slice of basic rate and higher rate tax tiers were all frozen anyway, but the deep freeze has been extended by two further years. Due to inflation and rising salaries, this will in itself raise more tax. This is part of what critics call ‘stealth taxes’ – the sort you don’t really register (much like inflation eroding your cash) – you only tend to notice after a few years of going backwards.

The Energy Price Guarantee will be maintained through the Winter, limiting typical energy bills to £2,500, this will increase to £3,000 from April. It is generally expected that energy prices will remain high for the next 12 months. To be blunt, nobody knows because it all rather depends on the Russians. One point to note is that the energy savings you may be making now will likely continue as the Government intend to reduce energy consumption by 15% by the end of the decade. To put that into perspective, that’s about the same as making your use of energy in 10 months last a year.

PROPERTY

The British obsession with houses continues to be supported by Government policy. The tax when buying property (Stamp Duty Land Tax) was reduced in September doubling the first tier of SDLT with a 0% tax rate from £125,000 to £250,000. For First Time Buyers this is extended from £300,000 to £425,000. These measures will end on 31st March 2025. If you are going to move or buy your first home and want to benefit from this fully, do so before March 2025.

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

The November budget2023-12-01T12:12:41+00:00

THE BUDGET 3 MARCH 2021

TODAY’S BLOG

THE BUDGET 03 MARCH 2021

The House of Commons was unusually civil during the Chancellors Budget Statement largely because hardly anyone was there due to social distancing and making the task rather easy to identify who is behaving like a spoiled child. Normally the Speaker has a harder job. As for the Budget – well, it’s a good job I am not a betting man.

The Chancellor believes that support over the pandemic will run to £407bn in various forms. This needs to be repaid if future generations are not to be saddled with debt forever, thereby hampering how future Governments can help them.

I did warn that taxes would rise, I thought capital gains tax would be the most obvious tax to increase. It has not. The only actual increased tax rate is Corporation Tax, which impacts business owners running profitable businesses (with profits over £250,000). Corporation tax will rise from 19% to 25% – that’s an increase of 31%. It may surprise you to learn that only 10% of businesses claim to make profits over £250,000.

Almost everything else stayed the same – but staying the same really means changing. Of course, this knock-on effect means reduced profit to share out in the larger businesses (like those you invest in via a fund) so returns may be dampened – but then this is simply a UK issue and most of your equity holdings are not in the UK now (your portfolio is global).

SOLOMONS IFA FROZEN ALLOWANCE BUDGET

THE SAME DOES NOT MEAN NO CHANGE

Pensions, Capital Gains, Inheritance tax all remain unchanged, which means that as incomes or the values of assets rise, the excess taxes begin to hurt rather more.

Those approaching retirement have the spectre of a 5-year freeze of the Lifetime Allowance at £1,073,100. Anything above this sees the excess taxed at 55% – so more likely. How much and how you can contribute to pensions is also frozen, as it is for ISAs and Junior ISAs. These are probably the “nice to have” problems if you are running a business that is struggling or have an income that has fallen dramatically due to the pandemic.

Your Personal allowance (income you can have at 0% tax rate) rises by £70 on 6th April to £12,570 but then stays at that level for 5 years. Higher rate and Additional Rate tiers also remain frozen. What this really means is that if your income rises due to inflation or promotion etc, you will pay more tax.

The most notable help to younger generations is the Apprentice Scheme and the re-opening of 95% mortgages by lenders, who have been given Government guarantees. There may be some window dressing here, a borrower will still be made to jump through a variety of hoops to prove that they can become an owner (or more accurately, a borrower) rather than a renter, with a 5% deposit. Those that have taken advantage of the reduce Stamp Duty ending in March, have a little longer to complete their purchase.

If you are asking me what I would have done differently, (you aren’t) well there is a very long list and most of it involves simplifying pensions and tax rates. Complexity enables some to thrive and others to become rather entangled. HMRC are due to have a whopping £180m spent on further technology to help ensure you report your taxes correctly with fairly dire consequences for those that do not. I do hope that the track and trace lot are not “awarded” the HMRC technology contract.

DETAIL IS A DEVIL

Politicians rely on our short-term memories, they must do otherwise so few would ever be re-elected. When you cut through the words it is best to look at the numbers. These are some key forecasts that I have pulled from the Budget Statement (which you can see here).

SOLOMONS IFA BLOG BUDGET ASSUMPTIONS

How you view life will likely influence how you select data from the table above (which is all lifted directly from the Budget) I have only shown the year on year changes as a percentage and drawn attention to some of the data (of which there is a lot!). Long story short, we will be paying more income tax. The Chancellor seems to be expecting unemployment  to increase by 500,000 over the next 2 years before reducing, but still above current levels. Inheritance tax receipts peak in the coming tax year perhaps reflecting the consequences of the fatalities from the virus.

The property market looks predicted to return to normality shortly, but really picking up next year. Council tax looks likely to increase rather faster than inflation. Fuel duties will begin to rise, and oddly over the next 12 months, once hopefully this is over, duties from alcohol actually fall in 2021/22 (which I think is odd unless you have all been knocking back the booze over the last year or so more than normal with a plan to cut back).  Air Passenger duty has rather obviously collapsed and will likely return to pre-pandemic levels in 4-5 years time, that’s quite a slow recovery.

Corporation tax will really bite in 3-4 years time. Business rates also begin to pick up, which when combined with loan repayments and more VAT, I imagine that some business owners may be looking at cost reductions. There may well be “pent up demand” and a good supply of labour, the Chancellor is understandably encouraging investment in growth, through new technology and digital business combined with Apprenticeships. It (business growth and development) is certainly what needs to happen, but whether it will remains to be seen.

Every Budget has lots of assumptions about the future, but you will be paying more tax, so use the allowances you can.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

THE BUDGET 3 MARCH 20212023-12-01T12:13:09+00:00

The Autumn Statement 2016

The Autumn Statement 2016

With a few hours to go Philip Hammond will be delivering his first Autumn statement, perhaps his last too if reports are to be believed that he will scrap them… who knows. In any event here is my quick wish list for the Autumn Statement

My Autumn Statement Wish List

(from a financial services perspective)

Abolish the Lifetime Allowance, which is currently £1m – if you hold more than this in pensions and you haven’t already “protected it” you will suffer an excess charge. Utterly pointless and discourages people from saving for their financial independence. This would also imply scrapping all previous protections.

Abolish Taper Relief – the new rule that has caused a raft of problems for those earning over £150,000 who can end up able to pay less into a pension (and still may suffer a penalty) than can be invested into an ISA. Utter lunacy, creating enormous headache for some.

Abolish Higher Rate Tax Relief – not what you might expect me to say and on the caveat that the two previous points are met. This saves the UK considerable sums, yet continues to offer an incentive to save for a pension.

Abolish Tapered Personal Allowance – either everyone gets one or nobody gets one. At the moment if you earn over £100,000 your personal allowance reduces by 50p for every £1 over £100,000.

Scrap the new Main Residence IHT allowance – just give everyone an allowance of £500,000 and have done with it. What former Chancellor George Osborne created is a shambles of smoke and mirrors.

Re-establish the different systems for Final Salary (Defined Benefits) pension schemes without any annual allowance, restricting total contributions to any pension to a fixed % of income by the employee (it used to be 15%). Vast sums and energy is used by departments in the NHS, Teachers, Local Government etc all creating utterly pointless, time sucking reports about the Annual Allowance and Lifetime Allowance. This is completely unnecessary.

Abolish LISA – another attempt to hit pensions with the high exit charges and daft array of decisions. Scrap this and other utterly pointless versions of an ISA. Have the single ISA allowance of £20,000 invest it however you like.

Stamp Duty – introduced to calm the property market which is now largely locked up with anxiety about Brexit etc. Huge tax take by Government and feels like a mugging. This needs reduced dramatically.

Fair Taxation

Earn it and tax it here. If you or your business generate income here in the UK it should be taxed at UK Corporation tax rates. Take note Google, Starbucks and Mr Green (et al). So all that nonsense for cross transfer pricing must end.

Genuinely Seeking Transparency and Tax Simplification? Have three rates of personal tax 0%, 20%, 40%. Whatever the source (dividends, capital gains, income etc). Huge sums are wasted on preparing numbers for a system that is designed to confuse. People break the rules deliberately or without knowing.

Corporations

Businesses pay corporation tax, this could be the same rates, with different allowances as personal taxation… this might mean busineses would use their revenue to reduce profits, either through inward innovative investments, expenses, employing people or redistributing to shareholders. More innovation creates more value, wealth, jobs….more tax take.

Means-Testing

If you are retired and have an income in excess of say £100,000 you forefeit your State Pension. You also forfeit free travel on public services and also the Winter fuel allowance…. come on, if you have a £100,000 income and don’t work any more, you aren’t going to need it or miss it and a relatively small number of retired people have £100,000 pension.. but really if you are a celeb you can give up your State pension and bus pass.

Landlords

Being a landlord is just like being a business. You have power over where people live. Some vetting is clearly needed (obviously not all landlords are bad). Landlords should have to apply to be a landlord license and register properties and all those living in them. Property has to be inspected every 3 years to ensure it is suitable for real people to live in. The new rules introduced about CGT, Stamp Duty and interest relief need reviewing, fair rents and fair offsets.

Ok, highly unlikely these will happen, but I really think some better ideas from Chancellors are required…

Our APP will be updated by the end of the day with all the relevant changes. It is FREE to have simply search for Solomons Financial Planning on either APP platform. There are loads of free tools and calculators to try out including an expenses tracker.

 

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

The Autumn Statement 20162023-12-01T12:18:58+00:00
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