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Beat Rishi’s tax grab: Your essential guide to protecting your wealth

Beat Rishi’s tax grab: Your essential guide to protecting your wealth

Fears over tax grabs on income and savings are mounting as the Chancellor faces pressure to start balancing the books after the pandemic.Two-thirds of

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Fears over tax grabs on income and savings are mounting as the Chancellor faces pressure to start balancing the books after the pandemic.

Two-thirds of us are worried about tax hikes and almost one in five are concerned their savings will be in the firing line, according to research for Money Mail.

And as the March Budget looms, speculation is rising about how the Chancellor will pay for the coronavirus crisis.

Tax grabs: Two-thirds of us are worried about tax hikes and almost one in five are concerned their savings will be in the firing line, according to our research

Tax grabs: Two-thirds of us are worried about tax hikes and almost one in five are concerned their savings will be in the firing line, according to our research

Tax grabs: Two-thirds of us are worried about tax hikes and almost one in five are concerned their savings will be in the firing line, according to our research

It is believed Rishi Sunak is considering a rise in capital gains tax, but changes to income tax rates and fuel duty have also been rumoured.

Our study, carried out by investment service Hargreaves Lansdown, found the biggest concerns were over income tax and VAT. 

It comes after the TaxPayers’ Alliance revealed the UK’s tax burden is at a 70-year high.

‘People are stressed that tax hikes could push them over the edge as they battle the economic effects of the pandemic,’ says Sarah Coles, personal finance analyst at Hargreaves Lansdown. ‘We need to start planning for tax rises now if we’re going to be protected.’

Here are Money Mail’s top five essential management tips to ensure you aren’t handing over more to the taxman than necessary…

ISAs

An Individual Savings Account (Isa) is a valuable tax shelter for your savings and investments in which you can place up to £20,000 each tax year.

There’s the option to hold a cash version — which is much like any standard deposit account — or you can invest your allowance in stocks and shares.

Savings: The beauty of an Isa is you don't pay tax on interest, for a cash Isa, or gains from any investments

Savings: The beauty of an Isa is you don't pay tax on interest, for a cash Isa, or gains from any investments

Savings: The beauty of an Isa is you don’t pay tax on interest, for a cash Isa, or gains from any investments

The beauty of an Isa is you don’t pay tax on interest for a cash Isa, or gains from any investments.

Our research showed that 15 per cent plan to place more of their savings into an Isa.

For those aged between 18 and 39 there’s also the option of opening a Lifetime Isa and bagging a government bonus.

Savers get a 25 per cent bonus, up to £1,000 per year, on the annual limit of £4,000 – which forms part of the £20,000 allowance.

The money can be used to buy a first property worth up to £450,000 or withdrawn from the age of 60 to boost income. A Lifetime Isa can be opened as a cash or stocks and shares account.

Remember, any unused Isa allowance doesn’t roll over — if you don’t use it, you lose it. You have until April 5 to use this year’s £20,000 allowance.

Pensions

Pensions offer unrivalled tax breaks which are worth maximising if you can afford it.

The taxman automatically adds relief to contributions at the basic 20 per cent rate. So if you put £8,000 in your pension, the Government will add an extra £2,000. 

Higher and top-rate taxpayers putting money into pensions can claim their additional 20 or 25 per cent relief through annual self-assessment returns.

Retirement savings: Our study showed that 13 per cent of people plan to contribute more to their pension to maximise tax breaks. You can only get tax relief up to £40,000 per tax year

Retirement savings: Our study showed that 13 per cent of people plan to contribute more to their pension to maximise tax breaks. You can only get tax relief up to £40,000 per tax year

Retirement savings: Our study showed that 13 per cent of people plan to contribute more to their pension to maximise tax breaks. You can only get tax relief up to £40,000 per tax year

Money saved in a pension is locked until the age of 55, but the benefits of the tax relief mean you can build up a meaningful sum.

More people are waking up to these benefits judging by the number of self-invested personal pensions (Sipps) opened in 2020.

The largest Sipp platforms have recorded increases, including Interactive Investor which saw a 123 per cent rise in the last three months of 2020.

Our study also showed that 13 per cent of people plan to contribute more to their pension to maximise tax breaks. You can only get tax relief up to £40,000 per tax year.

However, you can pay in unused allowances from the previous three tax years. Including the current year, that could mean you can make a pension contribution of up to £160,000 and receive tax relief. You must be under 75 to receive tax relief.

Dividends

The current dividend allowance of £2,000 means couples can share investments to boost this to £4,000.

The current dividend allowance of £2,000 means couples can share investments to boost this to £4,000 between them

The current dividend allowance of £2,000 means couples can share investments to boost this to £4,000 between them

The current dividend allowance of £2,000 means couples can share investments to boost this to £4,000 between them 

After that, basic, higher and additional-rate taxpayers would pay 7.5 per cent, 32.5 per cent and 38.1 per cent respectively. It therefore makes sense for the balance to be held by the lower taxpayer.

Investments and rental property can also be ‘gifted’ between spouses to reduce a capital gains tax liability when they are sold. This tax year, you can make a gain of £12,300 before tax is due.

A married couple holding assets jointly could make a gain of £24,600 before paying tax. The annual limit can’t be carried forward.

Extra income

Rent from an investment property, income from bonds and interest from savings are all subject to income tax.

Tax rules allow you to earn £12,500 before paying income tax. There is also a personal savings allowance set at £1,000 for basic rate taxpayers and £500 for higher taxpayers (zero for additional rate taxpayers).

These are the amounts which can be earned in interest before income tax is due.

If you’re married, you can share your savings and investments to maximise your allowances.

Once your income is over the allowances, you can switch the rest of the savings and investments into the name of the spouse paying the lower tax rate. This could more than halve your bill.

Inheritance

Assets can be passed between spouses free of tax at any time. After death this means passing it free of inheritance tax.

In addition, everyone has a nilrate band, currently set at £325,000, and homeowners have a residence nil-rate band of £175,000.

If you leave everything to your spouse you pass your nil-rate band to them.

So if your property is worth at least £350,000 (after subtracting the mortgage), you can leave an estate worth £1 million before any tax is due, assuming the property is left to children.

Pension rules allow you to pass on an untouched pension to future generations, potentially tax-free.

This means an Isa forms an important part of estate planning as taking an income from an Isa first means you leave your pension intact for longer.

There are also a host of allowances that enable you to gift money tax-free while you are alive — potentially reducing your loved one’s inheritance tax bill.

See gov.uk/inheritance-tax/gifts for more information.

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This post first appeared on Dailymail.co.uk

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