‘Beat the tax rises!” – this was the headline of one of the next day articles after the Chancellor’s Budget earlier in the year.

It was an article by Taha Lokhandwala, which started very sensibly by starting up the freezing of allowances and the likelihood that some 800,000 more people are likely to become higher rate tax payers by 2026, according to Hargreaves Landsdown.

It didn’t mention that the higher rate could be higher than 40% with the potential abatement of child benefit for those claimants, plus the 2% NIC rate for higher rate earners.

Then came the advice, much of which was sensible, such as the use of salary sacrifice schemes, although I wasn’t sure about the efficiency of some of the schemes such as “Bike to Work”. Was it written by a member of the metropolitan elite to be read by a metropolitan audience rather than us rural sorts?

My real problem was that the salary sacrifice schemes involved a reduction in net pay, which can be an issue for a couple (one earner, a couple of children and a mortgage). There isn’t always a lot of free cash available to increase pension contributions whether statutory or to enrol in mandatory occupational pension schemes.

I then came to what I might call the Hargreaves Landsdown marketing spoiler alert.

Apparently savers can use VCT and EIS schemes. In terms of saving tax, these wrappers do not help with the front line exposure to higher rate tax because income tax relief is given by way of an income tax credit.

The article went on to look at methods of avoiding the pension lifetime allowance (currently £1,073,100), IHT on your estate and then the scope for optimising CGT allowance. All this is fine and dandy but it is advice for people with capital. Their tax problems are firmly in the category of the “nice problem variety”.

A few years ago I did a piece comparing two hypothetical families. One was low income but high capital. The other was high income but low capital (with their income having to service mortgage debt and the demands of a growing family). Politicians always claim the former as poor and the latter as rich because they do not distinguish between income and capital.

Thus keeping the threshold frozen can be insurmountable challenge for many middle income families. Appropriate strategies need to be drawn up to make the fullest use of all beneficial tax rates and allowance within the family context.

That’s where we come in. If you would like to discuss any of the issues discussed in this article – please get in touch.

The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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