Home Money Tax rises are coming – so fight back with these tips

Tax rises are coming – so fight back with these tips

by Elijah
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Onslaught: Savers face tax rises, whatever Hunt announces



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Onslaught: Savers face tax rises, whatever Hunt announces

Onslaught: Savers face tax rises, whatever Hunt announces

Savers face an avalanche of tax rises next month, regardless of what Chancellor Jeremy Hunt announces in his Budget on Wednesday.

Speculation is growing about whether he will cut national insurance, income taxes, inheritance or other taxes.

But savers are being warned to keep an eye out for tax rises that have already been confirmed for the new financial year from April 6, unless the Chancellor grants a last-minute reprieve from implementation.

The annual capital gains tax exemption will be halved from £6,000 to £3,000 from April. This will mean that anyone who makes profits from selling assets or investments in excess of this amount will face a tax bill.

Up to £11.4bn in capital gains tax was paid in the year to January, and this sum is expected to rise next year once the allowance is reduced. Up to 260,000 more investors and trusts will pay it for the first time in 2024-25, according to HMRC figures.

The allocation cut was announced in November 2022, in Hunt’s Autumn Statement of that year. However, it will only come into effect in April because it is one of the two consecutive cuts that it announced at the same time; the other was from £12,300 to £6,000 from April last year.

The annual dividend allowance will also be halved from April to £500. The cut will reduce the amount you can earn in tax-free dividends to just a tenth of what it was in 2018. It was reduced from £5,000 to £2,000 in 2018, and halved to £1,000 in 2023. More than 1.1 As a result, millions more people will be forced to pay tax on dividends, HMRC estimates.

Jason Hollands, CEO of online investment service Bestinvest, says: “The tax environment for savers and investors will become noticeably tougher as policies stand.” He adds that the series of cuts to capital gains exemption and dividend allowances leave the impression that the Government is “really hostile to investors”.

To counteract these cuts, savers and investors can ensure they make good use of all the tax-free reliefs available to them.

Individual savings accounts are invaluable for keeping investments tax-free. This is because there are no capital gains or dividend taxes to pay on investments made in them.

Hollands suggests that investors who own shares or funds outside of an Isa or pension should consider selling them before the new tax year, when their exemption is halved. They can then buy back these investments within an Isa (in a process known as a Bed & Isa) to protect future gains from tax.

“As the process can take a few days, it should not be left until the last moment of the fiscal year,” he says.

Investment platform AJ Bell estimates that a basic rate taxpayer who made the most of their capital gains tax relief each year for the next ten years and transferred that money into an Isa could save £7,775 in tax compared to letting those Earnings are accumulated in a non-Isa account and realized all in one year.

A higher rate taxpayer could save £15,550. This assumes that allowances and rates remain unchanged, that assets grow by 5 per cent a year and that you transfer £20,000 into your Isa in the first year and £10,000 in the year after.

Married couples and those forming civil partnerships can transfer investments between them without incurring a capital gains tax bill. That means if your spouse hasn’t used up their full Isa allowance, but you have, it may make sense to transfer investments to them to make the most of your tax break. AJ Bell’s Laura Suter warns: “Just make sure you write down the original cost of the asset, as that’s what you’ll use when your partner comes to sell it.”

If you suffer losses on your investments, these can be charged against your capital gains, but must be reported to HMRC.

If you have to pay capital gains taxes, you will pay 28 percent on profits from a residential property other than your primary home and 20 percent on profits from other assets.

For a basic rate taxpayer, the amount you pay depends on the size of your gain, your overall income and whether the gain comes from residential property or other assets. It will be 10 percent on profits if you keep it within the base income tax rate, and 18 percent on property, rising to 20 percent and 28 percent for property at any amount you exceeds the basic tax rate.

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