Wake Up and Smell the Stealth Taxes
Published / Last Updated on 30/04/2021
If you are not already aware, you will be aware by the time you have watched/read this that in the Budget 2021 many taxes allowances are frozen from last tax year 2020/21 and some from 2021/22 at their current levels.
Income tax personal allowance is frozen from this tax year until the end of 2025/26 meaning you may not increase.
Inheritance tax allowance, capital gains tax allowance and many other allowances have been frozen from last year and before.
With inflation expected over the next few years, the Treasury has been very clever in freezing allowances meaning that we will all pay many hundreds if not thousands in additional taxes over the coming 5 years.
Imagine, your wealth or property growing by even higher inflation each year. If property prices go up 7% pa (they already are), it will mean greater taxation of estates for inheritance tax, capital gains taxes on gains, earned income tax, pension income tax, rental income tax, dividend income and we know that we cannot go back. You will never get it back, even if the government of the day increases allowances by inflation in 2026/27 we will all still be paying higher taxes due to lost allowance increases over the next 4-5 years forever.
We admit Covid-19 debt has to be paid for but this should be a temporary measure or an additional one off flat rate tax on all for the next 5 or 10 years.
Let’s have a look at those inflation projection figures:
|
INCOME TAX |
|
|
|
|
|
|
|
Inflation |
Allowances (would have been) |
Difference |
Additional Tax Per Band |
|
|
|
|
5% |
Personal Allowance |
|
10% |
20% |
40% |
45% |
|
2021/22 |
£12,570 |
|
|
|
|
|
|
2022/23 |
£13,199 |
£629 |
£62.85 |
£125.70 |
£251.40 |
£282.83 |
|
2023/24 |
£13,858 |
£1,288 |
£128.84 |
£257.69 |
£515.37 |
£579.79 |
|
2024/25 |
£14,551 |
£1,981 |
£198.13 |
£396.27 |
£792.54 |
£891.61 |
|
2025/26 |
£15,279 |
£2,709 |
£270.89 |
£541.78 |
£1,083.57 |
£1,219.01 |
|
Total extra tax over 4 tax years until April 2026 |
£660.72 |
£1,321.44 |
£2,642.87 |
£2,973.23 |
||
|
|
|
|
|
|
|
|
|
Multiplied by number 20% rate tax payers* |
25,100,000 |
|
£33,168,067,759 |
|
|
|
|
Multiplied by number 40% rate tax payers* |
4,200,000 |
|
|
£11,100,070,485 |
|
|
|
Multiplied by number 45% rate tax payers* |
364,000 |
|
|
|
£1,082,256,872 |
|
|
|
Total Tax payers |
29,664,000 |
|
|
|
|
|
* Source HMRC 2019/20 |
|
|
Total Extra Tax |
£45,350,395,116 |
over 4 years |
|
Just on current rates, that’s a whopping additional income tax bill each year for all tax payers and a huge additional tax take forever until allowances are backdated/adjusted to reflect 4 years on no increases which of course, will likely never happen.
|
INHERITANCE TAX |
|
|
|
|
|
|
|
Inflation |
Allowances (would have been) |
Difference |
Additional Tax Per Band |
|
|
|
|
5% |
IHT Allowance |
|
10% |
20% |
40% |
45% |
|
2021/22 |
£325,000 |
|
|
|
|
|
|
2022/23 |
£341,250 |
£16,250 |
|
|
£6,500.00 |
|
|
2023/24 |
£358,313 |
£33,313 |
|
|
£13,325.00 |
|
|
2024/25 |
£376,228 |
£51,228 |
|
|
£20,491.25 |
|
|
2025/26 |
£395,040 |
£70,040 |
|
|
£28,015.81 |
|
|
Total extra tax over 4 tax years until April 2026 |
|
|
£68,332.06 |
|
||
|
|
|
|
|
|
|
|
|
Multiplied by number of Estates Paying Tax* |
24,200 |
|
Total Extra Tax |
£1,653,635,913 |
over 4 years |
|
|
* Source HMRC 2017/18 |
|
|
|
|
|
|
Just on current rates, that’s a whopping additional inheritance tax bill each year for all tax payers and a huge additional tax take forever until allowances are backdated/adjusted to reflect 4 years on no increases which of course, will likely never happen.
Imagine inflation being even higher and you get the picture.
Wake up and smell the taxes!
You need to get help with tax planning now. You need to take action now. There are many ways to plan and mitigate income taxes, inheritance taxes and capital gains taxes.
