Autumn Statement: Jeremy Hunt outlines plans for windfall taxes
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In his Autumn Statement earlier this year, the Chancellor announced the income tax allowance threshold freeze would be extended until 2027/28. Under Prime Minister Rishi Sunak’s tenure as Chancellor, the tax allowance threshold was frozen until 2026. However, experts are warning the tax burden for Britons will increase as a result of the decision with lower earners being particularly worse-off.
Under current rules, employees on a lower income pay 32 percent tax on any money they earn over the tax allowance, which stands at £12,570.
This is separated into 20 percent for income tax and 12 percent for National Insurance contributions.
In comparison, higher earning households pay 42 percent on any earnings over £50,270 with those making over £150,000 a year getting a 45 percent income tax rate.
Since 2019, income tax thresholds have remained the same but this latest decision from Mr Hunt means the amount individuals will pay in tax will change over the next few years.
Due to the Chancellor’s move to continue with the threshold freeze, the majority of earners will pay more tax each year until 2028.
This is primarily due to fiscal drag, which is when tax thresholds stay the same while earnings rise with inflation.
The UK is currently experiencing a cost of living crisis which is being exacerbated by a soaring inflation rate of 10.7 percent.
While this is expected to drop in the coming months and years, workers are still expected to deal with high inflation for the foreseeable future.
In light of this tax allowance freeze, experts are encouraging workers to look into what tax relief they are eligible for to give their financial situation “a nice little boost”.
Alice Haine from Bestinvest broke down the type of tax relief which is on offer to Britons at the moment.
The finance expert highlighted taxpayers must either “use or lose” the tax relief on offer which could save them thousands of pounds.
“Some people assume the UK’s tax system is far too complex for them to understand, but by not doing their research they are effectively saying no to free money and paying tax on things they don’t need to.
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“While the first £12,570 of most people’s income is not taxable, this personal allowance could be higher if you claim marriage allowance, where a lower-earning partner transfers up to £1,260 in the 2022-23 tax year to the higher-earning partner, which can reduce their tax by up to £252.
“Note, however, this is only available for couples where neither pays the higher rate of tax.”
The finance expert highlighted that taxpayers must either “use or lose” the tax relief on offer which could save them thousands of pounds.
She added: “There are dozens of other allowances such as the trading allowance of up to £1,000 for casual income such as from baby-sitting or odd jobs in the community.
“A property allowance of £1,000 to account for any income derived from your home or land, such as letting someone park on your driveway or store items in your garden shed, and the £7,500 rent-a-room scheme if you let out a room to a lodger in the home you live in.
“There is also tax relief on maintenance payments for the divorced, uniforms you need to buy or repair and maintain for work and charity donations plus a whole host of others so do your research to cut your tax burden.
“It’s often a case of use it or lose it on tax allowances and reliefs as some can be carried over for a set period and others can’t.”
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