Rishi Sunak’s ‘tax raid’ may mean you pay £255 per year more in weeks’ time

Liz Truss defends National Insurance hikes due in April

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Tax hikes are just around the corner and they could create major problems for Britons managing their finances. The rising cost of living is coinciding with major tax changes which have already taken place, as well as an upcoming hike.

From next month, the Chancellor will be enacting a National Insurance rise of 1.25 percentage points.

It will start from the new tax year onwards – April 6, 2022 – with the aim to fund the NHS and social care.

Many are calling upon Mr Sunak to cancel the rise in his Spring Statement next Wednesday, but no indication of this has been shown.

Jason Hollands, managing director at Bestinvest, discussed the implications.

He said: “I wouldn’t be too optimistic about a cancellation, as both the Chancellor and Prime Minister have recently stated they are sticking to their guns. 

“And let’s not forget that the Government will both be under increased pressure to raise wages in the public sector given rampant inflation, as well as ratchet up defence spending in response to the new Cold War.

“So, it looks like the average worker will be paying £255 a year more in tax in a few weeks’ time. 

“And for some that hike comes alongside an increase to the taxation of dividends over and above the £2,000 annual allowance, with 1.25 percent added to the rate for each tax band.”

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However, Mr Hollands has also highlighted what he has described as a tax raid by “stealth” which has already been enacted.

Millions of people are set to be drawn further over the personal tax-free allowance and higher rate tax thresholds.

This is due to the Chancellor already freezing allowances until the 2025/26 tax year in a previous statement.

Similarly, as estates and properties increase in value more inheritance tax and stamp duty will be applicable.

This is a process known as fiscal drag – with inflation or income growth pushing people into paying higher taxes.

The five-year freeze announced last spring could raise £8billion per year for the Treasury, according to the Institute for Fiscal Studies (IFS).

As a consequence of the temperature being raised on tax, families are being urged to plan ahead.

Mr Hollands has stated forward-thinking will be the only way to “minimise the impact on wealth from fiscal drag”.

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Frozen thresholds, inflation and the rising cost of living such as energy bills will all be brought to bear on Britons in the coming months.

Many are already reckoning with making their finances stretch in challenging ways.

Mr Hollands added: “This is a reminder that better off households should consider a strategy to transfer wealth they are unlikely to need for their own financial security to the next generation, as tax efficiently as they can.”

Individuals can consult experts to assist them with their tax planning strategy.

Alternatively, services such as MoneyHelper, PensionWise and Citizens Advice may be able to offer assistance. 

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