Maximise your tax-free savings before they go
SAVERS are being urged to make maximum use of today’s tax-free savings vehicles such as Isas because there is a danger they could lose them in future. The warnings follow a report from the Institute of Public Policy Research (IPPR) Commission on Economic Justice, which called for a dramatic overhaul in the way that wealth is taxed, to raise an extra £120 billion over five years.
HM Revenue & Customs is already generating record levels of income tax, an extra £11 billion in the last tax year alone.
This would only increase if a Jeremy Corbyn-led Labour Party took advantage of current political chaos to win an election.
Today’s allowances can help savers and investors shield their wealth from the taxman but rules can change overnight, and experts are urging savers to make full use of what’s on offer while they can.
The IPPR has suggested a string of tax hikes, which would see capital gains tax on share price growth increase from 18 per cent today to 40 or 45 per cent for higher and additional rate taxpayers.
The think-tank also wants to see savings interest and dividend income taxed at exactly the same rate as earnings, meaning higherrate taxpayers would pay more.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the IPPR claimed its proposals are fair but they underplay the fact that most savers have already paid tax on their income, and are paying a second round of tax on any income or gains from savings and investments.
She said it underlines the importance of using your £20,000 annual Isa allowance to shield personal wealth, as returns are currently free of income tax and capital gains tax for life.
Coles said: “These are just think-tank proposals, so there is no need need to panic yet.” However, they also form part of a wider trend to higher taxation.
In the 2018/19 tax year, HM Revenue & Customs raked in 6 per cent more income tax, lifting total receipts to £191 billion. Britons now pay almost 30 per cent more income tax than they did 10 years ago.
The tax attack would intensify if current political turbulence led to a Labour government, which is likely to have better-off savers in its sights, and will also be targeting buy-to-let landlords.
TAX RELIEF
Tom Selby, senior analyst at investment platform AJ Bell, said: “Despite successive governments repeatedly raising the personal allowance, as a nation we are paying more income tax than ever before.”
Slashing the dividend allowance from £5,000 to £2,000 is partly to blame, as savers now pay more income tax on stocks held outside of an Isa.
Selby urged savers to use their pension allowances, as you can claim tax relief on your contributions. “Increasing your pension contributions when you move to a higher income tax band is a sensible and legitimate way to reduce the amount of income tax you pay.”