Taxpayers could find themselves with a surprise bill for HMRC if Labour decides to hike taxes over the coming months. Chancellor Rachel Reeves has ruled out increasing income tax, National Insurance or VAT but there are other bills taxpayers need to be mindful of, warns Chris Rudden, head of UK Investment Consultants at digital wealth manager Moneyfarm.
He said the Labour Government is may be looking at capital gains tax, inheritance tax and pensions, as a means of raising tax revenue. He encouraged people to understand how they can minimise their tax liability ahead of the potential changes.
Mr Rudden said: “As always using your tax-free wrappers such as ISA and pension wrappers are even more crucial than ever, as capital gains and dividend tax will become a much more real prospect for everyone.
“A few of these taxes that are being increased, won’t simply come through the normal PAYE system and you may need to settle a tax bill.
“So, it’s worth speaking to someone to understand your financial picture but setting aside a bit of money to cover and tax bills could be a wise thing to do – as you don’t want to suddenly have to make a shock payment that you haven’t budgeted for.”
He said pensions are the most likely target for tax hikes after as the tax-free allowances for capital gains tax have recently reduced.
He warned: “My guess is that the Chancellor may cut the 25 per cent tax free that people can take from their pension tax free.
“Looking at inheritance tax, the £325,000 that someone can pass on tax free, hasn’t moved for some time. It’s unlikely that it will be cut – but a further freeze of that level could be likely.
“In a similar vein, the ISA allowance hasn’t moved from £20,000 since 2017, which is now a much smaller amount in real terms. However, it’s unlikely that this will be increased – further punishing those trying to set their future selves up.”
Another tax expert, Paul Clifton from wealth firm Arbuthnot Latham, suggested some ways people can use their allowances to keep down their tax bills.
He said: “For married couples, use both of your tax free bands. Generally, assets can be passed between married couples or those in civil partnerships tax free.
“So if one is a high earner and the other is a non tax payer for example, hold any income generating assets (shares, property, interest) in the non tax payer’s name.”
He also encouraged people to plan ahead if they are liable for inheritance tax, as this is “the biggest bill beneficiaries can face”, imposing a 40 percent levy.
He said: “With careful planning, this can be reduced or offset, but most “deathbed” planning is ineffective. So it’s essential to plan.”
