More people to be caught by higher income tax bands

Nearly three-quarters of a million more people are likely to be caught by the 40 per cent income tax bracket from next April.

According to a new survey, more than 742,000 workers will be affected due to the freeze on tax rate thresholds announced in the Autumn Statement.

To make matters worse, rising inflation is wiping out many pay rises and their increased tax bill is likely to leave them worse off as a result, the data shows.

As a result of the decision to freeze the thresholds, new analysis from Investec Wealth & Investment estimates nearly a quarter (23 per cent) of full-time workers will be paying 40 per cent tax from April 2023, compared with 19.6 per cent who currently pay it.

The 45 per cent tax rate threshold is also being cut from £150,000 to £125,140. This will take far more people into the additional rate tax bracket than ever before, while also meaning those already in the bracket will pay the 45p rate on a bigger proportion of their income.

Tax saving options could include:

Top up your pension

As you fund an individual pension yourself, the more you pay in, the more potential there is for you to achieve the retirement you want but, in the meantime, you could get tax relief on additional contributions.

Contribute to your partner’s pension

If your partner is not earning, it is also tax-efficient to contribute to a pension scheme for them.

Charitable contributions

HM Revenue & Customs (HMRC) says donations by individuals to charity or to community amateur sports clubs (CASCs) are tax-free. The tax goes to you or the charity. How this works depends on whether you donate:

· Through Gift Aid

· Deducted from your wages or pension through a Payroll Giving scheme

· Through land, property or shares

· In your will

Transfer your personal allowance to your spouse or civil partner

This can be done simply online through HMRC, saving up to £252 tax annually. This is because the marriage allowance permits a basic rate tax-paying couple to transfer 10 per cent of one of the couple’s personal allowance to the other.

Need advice on personal taxation? Contact us today.

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