The UK tax burden is already at a 70-year high, but Hunt isn’t done yet.
He is taking aim at the nation’s savings, as both the capital gains tax (CGT) threshold and dividend allowance will be slashed at the start of the new financial year.
The threshold at which we start paying CGT on investment gains will fall from £12,300 to just £6,000 on 6 April, then cut again to £3,000 next year.
The dividend allowance, which allows people to take income from shares free of tax, will be halved from £2,000 to £1,000 next month. In April 2024, it will be halved again to £500.
This twin tax grab is already baked in. It’s going to happen, and savers need to act now to reduce their exposure.
I recently suggested ways that families can fight back against Hunt’s tax onslaught to reduce their CGT, dividend tax and even their inheritance tax bills.
These measures may not be enough on their own, as Hunt may have another trick up his sleeve.
He has also frozen income tax thresholds until 2028, which will drag more of us into higher tax rates each year as incomes rise.
There have been worrying suggestions that he will cut tax relief on pensions contributions, too. This tax break costs HM Treasury a staggering £50billion a year, making it a juicy target for Hunt’s knife.
Luckily, savers have a weapon at their disposal. It could help them fight both the income tax squeeze, which is already underway, and any future assault on pensions tax relief.
Pension savers can beat Hunt’s tax stealth raid and boost their retirement savings by paying more money into their pension before April 5.
When you pay money into a pension, the government grants tax relief on your contributions, as an incentive to save.
How much you get depends on your marginal income tax rate.
Basic rate tax relief at 20 percent is applied automatically to pension contributions. If you pay, say, £800 into your pension, the government will add an extra £200, which is effectively free money.
In total, £1,000 goes into your pension pot.
Those pay tax at 40 percent can claim back another 20 percent of relief via their self-assessment tax return.
This means that each £1,000 of pension only costs them £600. For additional rate 45 percent taxpayers, each £1,000 of pension costs just £550.
The system clearly favours the better off. Before every Budget, rumours fly that tax relief will be cut to 20 percent for everyone. It hasn’t happened yet, but Hunt has shown he likes to act tough so you never know.
Using this tax break to the max today clearly makes sense, if you can afford it as living costs rocket. Higher earners have the biggest incentie. They stand to lose if tax relief is cut back to a lower, flat rate for all.
Under the annual allowance for pension savings, everyone save the equivalent of their annual income in a pension and claim full tax relief, up to a maximum £40,000.
READ MORE: Slash tax relief on higher earners’ pensions pots to boost incomes
A higher rate 40 percent tax payer who contributed £40,000 could get £16,000 in tax relief, making this a hugely attractive opportunity.
Under carry forward rules, savers can also mop of any unused pensions tax relief from the previous three years, protecting even more of their money from HMRC.
Even those who cannot afford to invest anywhere near that much can still save thousands in tax.
Pension contributions enjoy further benefits, as they grow free of tax until you finally start making withdrawals at retirement when they may be liable to income tax.
Even then, the first 25 percent cash you take is tax free.
Another benefit is that any pension you have not spent when you die can be passed to loved ones, free of inheritance tax.
If you die before age 75, beneficiaries do not even have to pay income tax on the money. After that age, beneficiaries will pay income tax.
Paying extra into a pension works both for the self-employed paying into a personal pension, and employees with a company pension, where their employer offers a “salary sacrifice” scheme.
This is where you agree a salary cut or waive a bonus in favour of a pension contribution instead.
By doing this, it is possible for those earning just above an income tax threshold to drop a tax band and save thousands.
Pay less income tax and get more pension? It’s win-win. If you act fast.
Just remember that you cannot touch your pension until age 55 (rising to 57 in 2028) so do not invest money you may need before then.
