High earners turn to ISAs ahead of tax increases
Research has revealed that 84 per cent of Brits in the higher income tax bracket are planning to open a new ISA in preparation for higher tax bills.
Data from a CensusWide survey in February, on behalf of Barclays Wealth, discovered 55 per cent of Brits with an income between £50,000 and £100,000 are planning to open a new ISA in preparation for higher tax bills.
Meanwhile, 30 per cent with an income of £100,000 to £125,140 are planning to open one, and 33 per cent with an income of more than £125,140. Many of these people will begin paying the 45 per cent tax rate when the tax changes are implemented on 6 April.
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Of those, 31 per cent are turning to cash ISAs and 15 per cent are turning to stocks and shares ISAs.
Barclays Wealth director of savings and investments Clare Francis warned investors to be aware of capital gains tax (CGT), which is paid on profits made on the sale of investments.
“Each year you have a CGT allowance which means you only have tax to pay on any gains above the allowance threshold. This is currently £12,300 but it will fall to £6,000 for the 2023/2024 tax year,” she said.
“You can currently receive up to £2,000 a year in dividends without having to pay tax. This dividend tax allowance is dropping to £1,000 from 6 April. If you have any investments that pay dividends and they’re not in an ISA, it’s worth considering moving them into one.”
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Meanwhile, pensions are another tax efficient method of putting money away for the future, as investors receive tax relief on money paid into a pension.
“Basic rate taxpayers receive 20 per cent tax relief, so for every 80p they pay into a pension, the government tops it up to £1. Higher rate and additional rate taxpayers can claim extra tax relief through their self-assessment tax return, with higher rate taxpayers receiving 40 per cent tax relief, and additional rate, 45 per cent,” Francis added.
“It’s therefore worth paying as much into your pension as you can afford, within the annual allowance. For most people this is £40,000 a year or their total annual earnings, whichever is lower. The allowance reduces for those earning more than £240,000 a year, up to an income of £312,000, where the allowance drops to £4,000 per year.”
The survey looked at 1,000 consumers earning between £50,000 and £100,000, 1,000 consumers earning between £100,001 and £125,139, and 1,000 consumers earning £125,140 and above.
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