UK households under 'intense pressure' in 2022 as taxes bite - four changes
TAX changes announced by the Government in 2021 will take effect this year, as the Government looks to balance the economy in a post-Covid world. One expert has told Express.co.uk several changes could put Britons under "intense pressure".
BBC QT audience discuss the use of taxpayers’ money
In 2022, taxpaying Brits will see their incomes adjusted for the pandemic as the Government prepares to usher in a post-Covid era. Once ministers have repealed all remaining Covid rules at the end of January, they will introduce tax changes designed to draw a line in the sand and hit the country with a raft of increases. Shaun Moore, tax and financial planning expert at wealth management firm Quilter, told Express.co.uk the coming changes would, "combined with the cost of living crisis", leave many household finances "under intense pressure".
Health and Social Care levy
The Health and Social Care levy is the Government's answer to a funding hole for the struggling sector.
The policy met immediate pushback as Mr Sunak announced people would have to pay an additional 1.25 in National Insurance contributions.
Mr Moore said the increase comes at "the worst possible financial time" for those recovering from the pandemic crunch while fighting inflation and rising heating bills.
He said: "The Government needs to tread a fine line between helping to refill the public coffers and ensuring the general public don't feel too much of a financial squeeze.
"There are certainly some small tax tweaks the Government could make to help soften the impact on people’s bank accounts."
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Dividend taxes
The dividend tax rate will increase with National Insurance in 2022.
From April, people who earn money from dividends will have to fork out an additional 1.25 percent.
Those currently paying the tax include investors who get a cut from company shares, provided it is above the allowance.
At present, that allowance is £2,000, and it won't change in the 2022 to 2023 tax year.
Those who own shares and stocks within an ISA won't pay dividend tax rates.
Fiscal freeze
Mr Moore touched on the first budget delivered by Rishi Sunak in 2021, in which he announced a "fiscal freeze" to "claw back the increased Covid-spending".
The various frozen rates and reliefs include personal tax thresholds, pensions allowances and the annual exempt amount provided for Capital Gains Tax (CGT).
Under the Chancellor's policy, the rates will remain at 2021/22 levels until 2026.
Mr Moore said while it "may not seem like such a radical change" on the surface, it would leave people at the mercy of inflation.
The "inflationary environment" could end up dragging people into "higher tax bands" via "fiscal drag".
Inheritance tax
The fiscal freeze, Mr Moore said, would ultimately impact inheritance tax rates.
He said: "The nil rate band and residence nil rate band will remain frozen at the current levels of £325,000 and £175,000 respectively until April 2026.
"With property prices and share prices marching higher, IHT payers may well be paying more.
"In fact, the government collected £4.1bn in inheritance tax between April and November 2021, which is £0.6bn more than for the same period a year earlier."
Those wanting to bypass that freeze, Mr Moore added, is to "consider intergenerational wealth planning options such as making regular gifts".
How to reduce the tax burden in 2022
Britons still have a few months to make the most of any lower taxes, and the time to act is now, according to Mr Moore.
He said: “The first quarter of 2022 should really be about making full use of any tax allowances you can before they are reset in the new tax year.
"Most important is to use as much as possible of the £20,000 ISA allowance, which shelters savings from income tax on the proceeds or capital gains tax on the growth.”