You’d be forgiven for thinking you paid quite enough tax this year, so it’s horrible to think that next year there’s every chance you could pay even more. Because while Jeremy Hunt announced a National Insurance cut from January in the autumn statement, a host of other taxes are set to rise.
The good news is that for the average person, the NI cut means they’ll pay less tax on income – but that’s not the case for everyone. The four million people who’ll eventually be dragged into paying income tax for the first time will still be worse off, and those who got pay rises taking them into the higher rate tax bracket could pay more tax too if the higher rate outweighs the NI saving.
We’ll pay more council tax. For the second year running, councils will be able to raise bills by 5% without holding a referendum. Given that the government hasn’t budgeted to spend more on local government to keep up with inflation, plenty of councils will opt for the biggest possible increase.
Read more: What the autumn statement means for your finances
There will also be more tax on spending. Most of this is through VAT, which we pay as either 5% or 20% on most things we buy. As prices rise, it automatically increases the tax taken. Some of the extra tax on spending will come through specific duties too. Tobacco tax will rise, and while alcohol duty will be frozen until August, the rising price of alcoholic drinks will push the duty up anyway.
Fuel duty is still a worry. The 5p cut in fuel duty in March 2022 will run out next March, at which point we’re scheduled to have a fuel duty rise on top. The chancellor would normally have frozen this in the autumn statement, but we didn’t hear a peep out of him. There’s a chance he’s waiting for the government’s finances to improve and give him room for cuts, but there’s a risk this won’t happen.
Investors have two taxes to worry about next year. The dividend allowance will be cut in April from £1,000 to £500 – after falling from £2,000 a year earlier. The capital gains tax allowance is also halved to £3,000 – down from £6,000 last year and £12,300 two years earlier. For property investors, a combination of higher house prices and a lower capital gains tax allowance means more tax when they sell up – while higher rents mean more tax on their income too.
There’s very little we can do about tax on spending except to cut back, but there are some steps we can take to cut other taxes. It’s worth considering whether you’re in the right council tax band. These were estimated at speed and mistakes were made, so it’s worth asking your neighbours to see how much they’re paying. If you’re overpaying, you can challenge your valuation. It’s worth being aware that challenges can be denied, or can mean the valuation is raised instead of lowered – along with your bill, so do a bit of homework before you try it.
Read more: The hidden reasons we don’t do the right thing with our finances
You can also save income tax on your earnings, by paying into a pension. It won’t leave you with more money in your pocket, but if you can afford to put more money away for the long term, it’s a great way to cut your tax bill – as well as securing the income you need in retirement. Whatever you pay into your pension, you’ll get income tax relief on – so essentially you’re getting the tax back. If your employer runs a ‘salary sacrifice’ scheme, you can give up a portion of your salary for pension contributions to the same value – which means you’ll save the National Insurance on this bit of your salary too.
If you’re married or in a civil partnership, one of you is a non-taxpayer and the other is a basic rate taxpayer, you can save some income tax – without having to tie any money up. The marriage allowance lets the non-taxpayer give £1,260 of their personal allowance to their spouse in the current tax year. This means you save £252 this tax year. You can also backdate it for up to four years, so in the first year you can save more than £1,000.
Read more: Are you missing out on thousands of pounds in lost pension income?
Savers and investors can also protect themselves by moving into an ISA. You can shelter up to £20,000 a year from tax this way. A stocks and shares ISA will protect you from the horrible cuts in dividend and capital gains tax, while a cash ISA will save you from income tax. Some people can get an extra boost using a lifetime ISA – as long as they’re saving for a first property or for retirement, and they’re aged 18-39. They’ll get a 25% bonus on everything they pay in.
If you have more than £20,000 squirrelled away and can’t get it all into an ISA, or if you hold property and get rental income, if you’re married, you can take advantage of tax breaks for spouses (or civil partners). This means you can share the assets so you both take advantage of your ISA allowances, the income tax, dividend tax and capital gains tax allowances, and then whoever pays the lowest rate of tax can hold the rest.
These steps won’t make 2024 a year of low taxes for anyone, but they should at least stop you from paying more than your fair share.
Watch: How to save money on a low income
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December 07, 2023 at 01:00PM
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Why you could pay more tax in 2024 – and five ways to avoid it - Yahoo Finance UK
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