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Millions of Britons are set to pay more tax in the coming years, which many will want to avoid. Recently, a Freedom of Information (FOI) request from Quilter showed HMRC is forecasting 1,130,000 more people will pay higher rate tax by the 2027/28 tax year.
HMRC is predicting 301,000 more people will become additional rate taxpayers by the same year.
This is attributable to fiscal drag, where frozen tax thresholds and rising wages mean a higher proportion of income is paid in tax.
The issue has been compounded by Chancellor Jeremy Hunt’s decision to freeze tax thresholds for another two years – taking this to 2028.
However, paying a higher rate of tax could be beneficial as Britons could claim a “bumper boost” to their pension – but time is running out.
Under current rules, pension contributions are given a boost based on the rate of income tax of the saver – but only the basic rate is automatically added for personal pensions at 20 percent.
It is therefore down to higher rate and additional rate taxpayers to claim the 20 extra 20 percent or 25 percent themselves.
This must be done by completing a tax return, but the deadline is fast approaching.
Britons only have until midnight on January 31 to submit their Self Assessment tax return online, and millions are yet to do so.
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Recent estimates from Quilter show as much as £811million in higher-rate tax relief could be unclaimed.
Recently, analysis warned wage inflation is likely to drive the amount of tax relief on pension contributions higher in the year ahead.
The Government expects pension income tax relief to rise slightly to £27billion in 2023/24 as wages rise.
However, in an evaluation of the statistics, the Government pointed to a lack of awareness surrounding tax relief among workers from a 2015 study.
Becky O’Connor, director of public affairs at PensionBee, said: “The Government’s evaluation of pension tax relief as a benefit people are mostly unaware of suggests the system may be on the slab for changes. This is particularly as it is expected to cost the Government more as a result of wage inflation this year.
“Reform of tax relief has long been mooted as a clear cost saving for the Government.”
Another key date for Britons to bear in mind is April 5, 2023 – the last day of the current tax year.
People should ensure by this point they make use of all allowances and exemptions available to them – or they might be lost for good. This includes making use of the ISA allowance and pension contributions limit.
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Individuals must meet the Self Assessment tax return deadline, or face consequences.
Recently, Sarah Hollowell, tax and trustee services director at Killik and Co., warned there will be “no extension” to filing deadlines.
She added: “Penalties will be applied for returns that are submitted after these dates (even if there is little or no tax to pay).
“Filing your return after midnight on January 31 will result in an immediate £100 penalty – even if you have no tax to pay.
“If you are more than three months late with your filings, then you will receive further charges equal to £10 a day, all the way up to £900.
“At the six-month mark you will be hit with another penalty worth either £300, or five percent of your unpaid tax, depending on whichever of the two are higher – this will then be repeated at the 12 month-mark.”
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