Yahoo Finance Five ways to cut your UK tax bill in 2021
The UK budget, announced last week, revealed new minefields for savers, throwing up a number of ways the average person might end up paying more tax this year.
Chancellor Rishi Sunak unveiled giveaways worth billions over the next year followed by a surge in tax that will leave the UK with the highest tax burden since the 1960s by the end of this parliament. Deutsche Bank dubbed it a "spend now, pay later" budget.
The UK's Institute for Fiscal Studies said the chancellor had transformed from "Santa Sunak" to "Scrooge Sunak cutting spending and raising taxes to the tune of nearly £50bn ($70bn) relative to his pre-pandemic plans of March 2020." The budget was the biggest tax raising event since the early 1990s.
Watch: Budget round-up - the key points
According to analysts at Hargreaves Lansdown, among other things, income tax thresholds have been tipped as one to watch for "stealth tax," as they will rise with inflation.
Dividends are also expected to rebound, increasing the likelihood of a new dividend tax, they said.
Alongside these, if you complete on a property purchase after September, rising house prices bring with them a stamp duty hike.
More estates will also be facing paying more inheritance tax, too, after both the nil rate band and gifting allowances were frozen.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “If you were wondering what to spend your lockdown bonus on, the government has an idea: higher taxes.
The real stealth taxes coming next year aren’t the ones that were announced in the Budget, they’re the myriad of other thresholds and allowances which haven’t budged at all, and in some cases haven’t moved in so many decades that they’re practically fossilised."
READ MORE: Budget 2021: Stealth tax rises will 'hit middle England' hard
So, with that in mind, here are five top tips for savers looking to stay smart in the face of shifting goalposts.
1. Individual Savings Accounts (ISA)
The government offers the chance to squirrel away £20,000 in this tax year — free of tax.
If you’re saving to buy a first property, are aged 18-39, and have at least a year until you expect to buy, you should consider a Lifetime ISA (LISA), because in addition to tax free growth, you get a 25% bonus on contributions. You can save or invest £4,000 this tax year.
Don’t forget Junior ISAs (JISA) too. In the current tax year, you can save or invest £9,000 in a JISA for any qualifying child, and all interest, dividends or capital gains are tax free.
2. Pensions
Contributions to pensions attract tax relief at your highest marginal rate, and the first 25% taken from the pension is usually tax-free. There’s tax relief on pensions even for non-taxpayers – on the first £3,600 a year. It means you can contribute tax-efficiently to a pension on behalf of a child.
3. Salary sacrifice
In some cases, the government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance). This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
READ MORE: Holiday spending doubles after lockdown roadmap announced
4. Spouse exemptions
Assets that produce an income can be passed between spouses without triggering a tax bill. They can therefore be shared between a couple, so that both take advantage of their allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.
5. Marriage allowance
If one spouse is a non-tax payer, and the other is a basic rate taxpayer, the marriage allowance lets the non-tax-payer give £1,250 of their personal allowance to their spouse in the current tax year.
Watch: What is national insurance and do I have to pay it?
