HMRC’s tax receipts have risen again. Here is what you can do to protect your wealth

With a recent change in government and the cost of living crisis continuing to dominate headlines, you might not be aware that your tax burden could be rising.

Since the 2020/21 tax year, several tax-efficient thresholds (under which you would pay no tax) have been frozen or reduced, as the below table shows.

*The residence nil-rate band is only available to those passing their primary residence down to direct descendants, including children, grandchildren, great-grandchildren, foster children, adopted children, and stepchildren.

**The Personal Allowance is reduced by £1 for every £2 you earn over £100,000, meaning that additional-rate taxpayers do not benefit from the Personal Allowance.

Source: HMRC

These freezes and reductions mean that while your income rises, a greater portion of your earnings might be dragged into the taxable bracket (this is known as “fiscal drag”). In the case of inheritance, if the value of your estate keeps rising, your loved ones could face a larger bill than anticipated.

Keep reading to learn how these changes contributed to the rise in HMRC’s tax receipts in the 2023/24 tax year, plus two ways to keep on top of your tax liability in 2024/25.

HMRC collected £827.7 billion in tax receipts in the 2023/24 tax year

In the 2023/24 financial year, HMRC collected more than £827 billion from taxpayers – a £41 billion (5%) increase on the previous year’s receipts.

To break it down, let’s take a closer look at the takings for CGT, Dividend Tax, IHT, and Income Tax.

Capital Gains Tax

Interestingly, CGT takings fell between 2022/23 and 2023/24.

In the 2023/24 tax year, HMRC received £15.4 billion in CGT, down from £16.93 billion in 2022/23, Statista reports. This might have been caused by investors holding onto assets that were experiencing dips due to market volatility, among other factors.

However, over a 10-year period, the increase in CGT receipts is stark. In the 2013/14 tax year, HMRC received £3.91 billion in CGT, less than one-third of its takings in 2023/24.

Dividend Tax

Although HMRC has not published its exact Dividend Tax takings in recent years, the Dividend Allowance has been reduced by 75% since the 2021/22 tax year.

So, if you take dividends as part of your remuneration, you can now only receive £500 before paying tax on the amount you receive (on top of your Personal Allowance, which is frozen at £12,570 for most earners). This is likely to push up the tax burden of many people who receive dividends, perhaps even prompting some to pay Dividend Tax for the first time.

Inheritance Tax

HMRC reports that IHT receipts have risen year-on-year since the 2019/20 tax year, and MoneyAge reveals that receipts hit a record of £7.5 billion in the 2023/24 tax year.

Income Tax

Statista says that Income Tax takings grew to £273.3 billion in 2023/24, up from £248.8 billion in the previous financial year.

Although the Labour government might enact fiscal change, there are no existing plans to amend tax-free thresholds and allowances. This means that the existing allowances and thresholds could be in place until 2028 as originally planned by the Conservative government.

Here are two ways you could seek to mitigate your overall tax liability in the 2024/25 tax year (and beyond).

2 ways to mitigate your tax liability in the 2024/25 tax year

1. Take your income strategically

It is sometimes possible to draw a strategic income that lowers your tax liability.

If you are still working, you may be concerned about your Income Tax bill. If so, you could consider making pension contributions through a salary sacrifice scheme to bring your taxable income down while boosting your wealth for later life. You could also consider using Individual Savings Accounts (ISAs) to save and invest, in which gains are not subject to CGT or Income Tax.

In retirement, you may have even greater opportunities to design your income in a tax-efficient way. Taking a small amount of income from several different sources, such as your pension pot, the State Pension, and non-pension assets, could lessen your tax burden across the board.

2. Work with an experienced financial planner

Being caught by fiscal drag can be stressful. Fortunately, consulting a financial planner could help you to mitigate your bill.

If you’re on the cusp of retirement, you might need advice about drawing your pension in a tax-efficient way, or want to know how to cash in investments without paying more CGT than you need to. Or, you could be wondering how to pay less Income Tax as a higher- or additional-rate taxpayer.

All of this, and so much more, is possible with bespoke financial planning.

Want to keep more of your hard-earned wealth for yourself and your loved ones? Email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.