Yahoo Finance How to beat the £199bn income tax bill
Britons are expected to pay £199bn ($275bn) in income tax for the 2021/2022 financial year, up from £187bn in 2018/19, new data has revealed.
This was more than twice the amount paid in income tax in 1999/2000.
HMRC figures also show there will be 4.13 million higher rate taxpayers in 2021/2022, which is down 2.4% from 2018/2019. They will make up 13.1% of income tax-payers.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Unfortunately, things are set to get far grimmer for the next few years.”
This is because a freeze in personal allowance and higher rate tax threshold means more people will pay more tax, and the number of higher rate taxpayers will grow again.
“We’ve had a few years of more positive news for higher earners, because the personal allowance has been rising gradually, and we’ve seen a bump in the higher rate tax threshold too, so the proportion of people paying higher rate tax has dropped,” she added.
She recommends some steps to protect income from tax.
Read more: Millions of Brits who WFH urged to claim up to £500 tax relief by HMRC
1. Open an individual savings account (ISA)
An ISA can protect income from tax. If you’re saving to buy a first property and are aged 18 to 39, you should also consider a Lifetime ISA, because in addition to tax free growth, you get a 25% bonus on contributions.
2. Contribute to pensions
These contributions attract tax relief at your highest marginal rate, and the first 25% taken from the pension is usually tax-free. There’s tax relief on pensions even for non-taxpayers, on the first £3,600 a year.
3. Find out what you can spend on without paying tax
In some cases, the government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance). This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
4. Look into spouse exemptions
Assets that produce an income can be passed between spouses without triggering a tax bill. They can be shared between a couple, so that both take advantage of their allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.
Watch: How to save money on a low income
