And So The New Tax Year Begins

The calendar flips to a new tax year and taxpayers face several changes and challenges. From the effective abolition of the lifetime pension allowance to reductions in national insurance rates, the tax landscape is shifting ...

"One of the key changes taking effect this tax year is the abolition of the lifetime allowance for pensions!"

This controversial cap on pension savings has been a source of frustration for many high earners, and its removal is seen as a positive move towards encouraging individuals to save for their retirement.

However, the reduction of capital gains and dividend tax allowances may offset some of the benefits of the LTA changes, as individuals will now be taxed at higher rates on these types of income.

In addition, the government's recent announcement of reductions in national insurance rates has been met with mixed reactions. While this may provide some relief for low and middle-income earners, it also means a loss of revenue for the government at a time when public spending is at an all-time high. This raises the question of how the government will address the growing tax burden and whether a pre-election tax giveaway is a possibility.

"However, even with potential tax cuts, the overall tax burden is still expected to increase significantly in the coming years!"

According to projections, the tax take will be £104 billion higher in 2028-2029 than it was in 2018-2019. This heavy tax burden has become the new normal for UK taxpayers, and there are concerns about the impact it will have on individuals and the economy in the long run.

One area of concern is the 60% tax trap, which applies to individuals earning over £100,000 due to the personal allowance taper. This policy, introduced 14 years ago, has never been adjusted for inflation or rising incomes. As a result, more and more individuals are being pulled into the higher tax bracket, and the benefits of earning a higher income are diminished by the high tax rate.

The freeze on thresholds for higher-rate taxes and the inflation-linked pay increases means that even middle-income earners are feeling the squeeze. This has led to calls for a fairer distribution of the tax burden, with some even suggesting that the government should consider taxing wealth and assets rather than just income.

"Another area of concern for high earners is the potential reinstatement of the pension cap by a future government!"

While the current government has removed the 55% tax charge on pension pots over £1,073,100, there is no guarantee that this will remain the case. Labour has stated its intention to bring back the cap, which could have significant implications for those who have already breached the threshold and may need to reverse their contributions.

In light of these challenges, there are also opportunities for the government to shape a fair and sustainable tax system. Incentivising individuals to save for retirement and addressing unfairnesses, such as the frozen child benefit payments, could be key steps in achieving this. Additionally, the government could look at modernising the outdated council tax system, which is set to reach a record high as a percentage of GDP in 2024-2025.

"The new tax year brings with it a mix of changes, challenges, and possibilities for taxpayers!"

While the tax landscape may be shifting, it is important for the government to work towards a fair and sustainable tax system that benefits the economy as a whole. As taxpayers navigate these complexities, they should also keep an eye on potential changes and seek out opportunities to save on their tax liability.

Your accountant can certainly help with that.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.