Plan ahead to beat Rishi Sunak's tax rises

Harvey Jones

If you thought you were paying enough tax then watch out, the burden is only going to get heavier. Here's how to manage your finances ahead of tax hikes. 

Chancellor Rishi Sunak's Budget on 3 March included personal taxes totalling at least £21 billion over the next five years, and more could follow as the Treasury desperately tries to fund the COVID-19 bailout.

Freezing the personal allowance means millions of us will pay more in income tax, while the better off will pay more tax on their pensions, capital gains and inheritances. The only thing you can do is make use of your existing allowances so that you don’t pay more tax than necessary.

 

Use your ISAs

This is where your ISA allowance comes into its own. Each tax year, you can invest up to £20,000 in cash or stocks and shares, and take your returns free of income tax and capital gains tax.

HM Revenue & Customs can't touch it, whereas it might tax savings interest or share dividends outside of an ISA, once it passes a certain level. 

Those aged between 18 and 39 who are saving to buy a property should consider investing in a Lifetime ISAThe government offers a 25% top-up on contributions of up to £4,000, giving a maximum £1,000 bonus a year.

Parents and grandparents should not forget Junior ISAs, which allow families to save or invest £9,000 a year for children free of tax.

 

Claim pension relief

You can also invest in a pension and claim tax relief on contributions. You can invest up to your maximum salary, or £40,000, and claim relief at 20%, 40% or 45%, depending on your tax bracket.

Even non-taxpayers get 20% relief on a maximum £3,600 so you can contribute on behalf of a non-working partner or child.

 

paying tax

 

Make a little sacrifice

If working, check whether your employer offers a salary sacrifice scheme. This involves giving up a portion of your salary and spending it free of tax on pensions, childcare vouchers, bike-to-work and technology schemes.

If working from home, whether self-employed or not, you could offset expenses such as rent, mortgage or utility bills against earnings.

 

Pass the wealth around

Married couples and those in civil partnerships can pass assets between each other free of tax. 

If you expect to make a large capital gain, say, from selling property or shares held outside of an ISA, use both your annual £12,300 exemptions.

 

Mop up your marriage allowance

If one spouse or civil partner pays standard rate income tax and the other does not, the higher earner can transfer £1,250 of their personal allowance and cut their tax bill by up to £250.

Claims can be backdated for up to four years, saving £1,188 in total.

 

Cut inheritance tax

Reduce any future inheritance tax liability by making gifts to loved ones. You can gift a maximum of £3,000 with no IHT to pay, or £6,000 for couples, and mop up unused allowance from last year.

You can also make a wedding or civil ceremony gift of up to £1,000 per person, rising to £5,000 for a child or £2,500 for a grandchild or great-grandchild. You can make further IHT-free gifts of up to £250 per person, provided the beneficiary has not benefited from another exemption.

You can also make regular gifts from income. Further gifts are only entirely free of inheritance tax if you live for seven years.

 

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