Households are increasingly falling into a sneaky “tax trap” which is slapping Britons with a 60 per cent levy.
From last April, the highest rate of income tax of 45 per cent has applied to individuals with a total income over £125,140.
Personal tax allowances are tapered for Britons with an income between £100,000 and £125,140 which results in the marginal tax rate in this bracket being 60 per cent.
Chancellor Jeremy Hunt is rumoured to be considering tax cuts in tomorrow’s Spring Budget but experts are warning any reform is “unlikely to make much of a dent” to peoples’ finances.
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Britons are being hit with a marginal tax rate of up to 60 per cent
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Gary Smith, a partner in Financial Planning at wealth management firm Evelyn Partners, outlined that the overall tax burden is rising and “due to rise further”.
The finance expert urged households to not wait for Mr Hunt’s Budget to take action when it comes to calculating how much they can save on tax.
He said: “Irrespective of what is announced in the Budget, if earners, savers and investors have not reviewed their tax position in this fiscal year, it’s definitely time to do so now.
“Many allowances are calculated on a yearly basis, so a pre-tax-year-end review can help to identify any potential tax savings, particularly as some changes are afoot on April 6.
“Even if it’s too late to take some steps by the end of this tax year, tax planning is a year-round exercise, and it pays to start looking ahead to next year.”
According to Mr Smith, there are various ways Britons can reduce their tax liability to avoid being slapped with this 60 per cent rate.
These include making extra pension contributions or charitable gift aid payments to avoid falling foul of the threshold.
Furthermore, he recommends that taxpayers consider transferring income-generating assets between spouses or civil partners.
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Britons have seen the tax burden rise significantly in recent years GETTY On top of this, the tax expert reminded earners to make use of their tax-free or tax-efficient investments to secure better savings.
As part of his advice, he also recommended that Britons chose to invest in assets which generate capital growth rather than income.
Finally, households could also find a way to alter the timing of any income coming income to maximise the use of lower rate bands, the financial expert claims.
Mr Smith added: “There are some relatively easy steps you can take to reduce taxable income, and that can be particularly tax efficient if you are about to or have just fallen into this 60 per cent marginal tax rate band.”