- Income tax and National Insurance paid through wages hit a record high of £52.5 billion in April – £4.7 billion higher than a year earlier (source: HMRC tax receipts and National Insurance contributions for the UK – GOV.UK)
- Overall, we paid £87.3 billion in tax and National Insurance in April – £6.3 billion more than the same period last year
- Tax attacks could get worse still, with potential Labour leadership hopeful Wes Streeting proposing equalising capital gains tax with income tax rates
Sarah Coles, head of personal finance at AJ Bell, comments:
“Tax on wages hit a record high last month, as we forked out an eye-watering £52.5 billion in income tax and National Insurance through the PAYE system. In total, we handed over £87.3 billion to the taxman, and these figures are set to climb even further, because the tax attacks are far from over.
“Income tax bills have been climbing ever since thresholds were frozen in 2021/22. Since then, every pay rise has pushed millions of people into paying more tax, and more at higher rates.
“The fact that thresholds are set to stay until at least 2031 means there’s more tax agony on the way. And it doesn’t stop with wages, because when we cross a threshold, the rate of tax we pay on savings and investments returns rises too – and the allowance for savings falls. It means taxpayers are handing over yet more of their investments and savings income and gains.
Getting worse
“The taxman has been tightening the grip on our savings and investments for years, and things are set to get worse. It’s bad enough that the dividend and capital gains tax allowances have fallen, but the rates on both taxes have climbed in recent years as well. From next April, the income tax payable on savings interest and property income will also increase by two percentage points.
“This week, potential Labour leadership hopeful Wes Streeting has said that if he became prime minister, he would like to see the capital gains tax rate equalised with the income tax rate. The next few months may well pour cold water over any prospective plans of the former health secretary, but should he end up the next resident at Number 10 this would be a massive hike, particularly for higher rate taxpayers.
“Ironically, such a move won’t necessarily raise more tax. At this level, it will likely incentivise people to hoard assets until their death – when the capital gain effectively resets to zero. This isn’t necessarily right for their investment strategy. It could also mean fewer assets are passed down to younger family members during their lifetime. Plus, it could cause bottlenecks in the property market if people are sitting on houses for tax purposes.
“It will make tax planning even more essential. Stocks and Shares ISAs are a no brainer, because all investments in an ISA are free of dividend tax and capital gains tax. It’s also worth thinking about how you hold assets as a family, and whether spouses can share assets so they can both take advantage of their ISA allowance each year. If you have investments outside an ISA and you still have your allowance available, you can move them inside using the Bed and ISA process. For any assets that remain outside an ISA, it makes sense to make use of your capital gains tax allowance each year too.”
