It is no secret that the government has a problem. Dealing with the Covid crisis has been an expensive business. In the first year of the pandemic, from April 2020 to 2021, the government borrowed £299bn, the highest figure since records began in 1946. Another £200bn will be needed this year.
The furlough scheme, business loans and supporting the NHS may all be money well spent, but sooner or later the books will need to be balanced. As taxpayers, we will be paying for it all.
At Continuum we are looking at what this will mean for you and your finances in the future, and why you may need to act now.
The Covid tax hangover
There will inevitably be a big bill to pay, because the government has not only been spending much more, it is getting in much less. Unemployed or furloughed workers pay less income tax, businesses pay no tax on profits if they can’t do business and we all pay less VAT if lockdown means we buy less of everything.
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Chancellor Rishi Sunak has made it clear that he will not risk choking off the recovery by imposing new tax burdens now. But he warned that the spending spree to support workers and spur investment will be followed by tax rises as the economy recovers, saying that future tax hikes were needed to stop “irresponsible” debt.
He was clever in his March budget. He kept to the Conservative party 2019 manifesto pledge not to raise Income Tax, National Insurance or VAT rates, apparently avoiding increasing tax altogether. However, by freezing allowances, he actually increased tax revenues. Inflation now looks inevitable, and his approach will mean more money flowing into the Treasury as prices and hopefully wages increase.
The Office for Budget Responsibility (OBR) has calculated that freezing tax thresholds will raise £20bn of extra revenue over the next four years. But it may not be enough to cover the shortfalls and some more painful tax increases look inevitable. A steep rise in Corporation Tax from 19% to 25% is the most dramatic measure already announced.
Even more worrying for those of us without a business to run, there is intense speculation that the pension triple lock is at risk and that tax relief on pension contributions may be due for a ‘reform’ which will mean that filling our pension pots will cost much more.
Why you need to act now
It looks that in a few years’ time, when hopefully the recovery has really taken hold, we may all be facing a higher tax burden. To reduce the impact on your financial plans, you may need to act now.
It could be time to:
- Maximise your pension contributions to make full use of tax relief
- Get a detailed pension forecast – to see the effect changes will have
- Make full use of your ISA entitlements
- Look at your investment portfolio
- Check any capital gains tax liabilities
You will need an expert to help you. At Continuum we are ready to provide all the help you need.
Start cutting your future tax bill now
To find out more about how you can reduce your future tax bill book a video consultation with a Continuum expert.
At Continuum our service is personal. We work with you on an individual basis to develop a wealth management scheme which could help you build your wealth, make better use of your resources and reduce the share the taxman wants to take.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.