Rishi Sunak may have to break income tax promise says expert
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Income tax is levied on many forms of income and how much a person pays depends on how much they earn throughout a year. While income tax is not levied on all types of income, it is charged on many forms people receive such as money earned through employment, most pensions and certain state benefits.
Recently, HM Revenue and Custom (HMRC) released statistics on income tax liabilities between the 2018 and 2021 tax years.
Hargreaves Lansdown examined these figures and highlighted the following:
- There were 31.6 million income tax payers in 2018/19, and there will be 32.2 million in 2021/22, as a combination of employment and population increases alongside the freeze in the personal allowance
- In 1999/2000 we paid £93 billion in income tax. This rose to £187 billion in 2018/19 and is expected to hit £199 billion by 2021/22
- There will be 27 million basic rate taxpayers in 2021/2022, which is a 2.6 percent increase from 2018/2019. They’ll make up 83.2 percent of income taxpayers
- There will be 4.13 million higher rate taxpayers in 2021/2022, which is down 2.4 percent from 2018/2019. They’ll make up 13.1 percent of income taxpayers
- There will be 440,000 additional rate taxpayers in 2021/2022, up 10.3 percent from 2018/2019
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “The Government is going to take £199billion of our hard-earned money in income tax in 2021/22, more than twice the sum it took in 1999/2000.
“We’ve had a few years of more positive news for higher earners, because the personal allowance has been rising gradually, and we’ve seen a bump in the higher rate tax threshold too, so the proportion of people paying higher rate tax has dropped.
“Unfortunately, things are set to get far grimmer for the next few years.
“The freeze in the personal allowance and higher rate tax threshold means more people will pay more tax, and the number of higher rate taxpayers will grow again.
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“By 2021/22 it will still be below its 2018/19 level, but it’ll soon be back over it again.
“And while we’re happy to pay our fair share of tax, we can’t afford to pay over-the-odds. So it’s worth considering some simple steps to protect your income from tax.”
Ms Coles went on to break down how people can manage and reduce their income tax costs: “ISAs can protect income from investments from tax. If you’re saving to buy a first property and are aged 18-39, you should also consider a Lifetime ISA, because in addition to tax free growth, you get a 25 percent bonus on contributions.
“Contributions to pensions, meanwhile, attract tax relief at your highest marginal rate, and the first 25 percent taken from the pension is usually tax-free.
“There’s tax relief on pensions even for non-taxpayers – on the first £3,600 a year.
“In some cases, the Government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance).
“This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
“And you can take advantage of the spouse exemption that means assets that produce an income can be passed between spouses without triggering a tax bill. They can therefore be shared between a couple, so that both take advantage of their allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.”
For those unsure of what they may owe, the Government has a tool on its website which allows people to estimate their bills for the current tax year.
This tool allows people to estimate how much they’ll owe between April 6 2021 and April 5 2022 and on top of this, it will allow people to factor in deductions such as pension contributions and student loans.
For the self-employed, there is also a self-employed “ready reckoner” tool which can help freelancers budget for their tax bill.
Additionally, impartial guidance on income tax can be sought from the likes of Citizens Advice and the Money Advice Service.
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