Tax receipts for the 2024/25 tax year have just been announced confirming the overall tax receipts in the UK, as a percentage of GDP, are the highest since the end of the second world war.
With OBR predicting it will reach a historic high in 2027/28 and remain at a high level for the rest of its forecast.
While this won’t be welcome news to many of your clients, it does give opportunities to demonstrate the value of tax planning and help people manage the tax they are paying.
There are a number of planning options which advisers can help clients use
While headline income tax rates haven’t increased, the freezing of personal tax thresholds since 2021/22, alongside a period of fairly high nominal wage growth, has seen significant increases in the number of people paying tax for the first time as well as the number of higher and additional rate taxpayers.
For example, there were 5.6 million higher rate taxpayers in 2023/24, more than 40% up on 2020/21. With the tax thresholds frozen through to 2028 these numbers will continue to rise.
However, there are a number of planning options which advisers can help clients use.
Equalising assets between spouses/civil partners where there is a disparity between the rates of tax paid, could increase the household income.
Taxable income could be reduced by taking natural income or withdrawals from Isas or investment bonds within the tax deferred allowances.
Making pension contributions is another obvious strategy. As well as reducing income tax this can also help some people regain some or all of their personal allowance or child benefit.
It’s also worthwhile reminding any new higher rate taxpayers they need to reclaim the higher rate relief from HMRC if they pay into a relief at source scheme, such as a personal pension.
Many of these individuals won’t complete self-assessment and if they haven’t previously been a higher rate taxpayer, it’s easy to overlook this important step and lose the additional tax relief.
It’s straightforward to do this online, and claims can be backdated for four years should clients have forgotten to do it in previous years.
Capital gains tax receipts in 2024/25 have fallen slightly compared to the previous year, however, OBR forecast they will rise from around £13bn now to £25.5bn in 2029/30.
Again, there are planning opportunities available. People can make use of the ‘no loss/no gain’ disposal between spouses/civil partners.
This approach means there is no immediate CGT when the asset is transferred, but the receiving spouse inherits the original purchase price.
That means – if the asset was sold immediately – the gain will be the same, but the receiving spouse may not have used their annual exemption, and/or may be a lower taxpayer. So it can be a useful tool to minimise tax across a couple.
Where an asset falls in value – which may be particularly relevant in the current climate – crystallised losses can be offset against gains.
Gains and losses incurred in the same tax year are offset against each other. Any excess loss can then be carried forward to future years to offset against gains in those years.
Inheritance tax is also increasing steadily. £7.5bn in 2023/24 has increased to £8.2bn in 2024/25 and OBR forecast it will reach £14.3bn in 2029/30, pretty much doubling in six years.
If the inclusion of pensions within IHT takes place from April 2027 then these future figures are likely to grow even more strongly.
Using exempt gifts, investing for others such as children or grandchildren, and making gifts to trusts can all help reduce the taxable estate.
While no one likes talking about their own mortality, planning as early as possible is key for IHT mitigation
People may also want to review assets which currently benefit from 100% agricultural or business relief before changes come through in 2026.
Overall, while no one likes talking about their own mortality, planning as early as possible is key for IHT mitigation.
UK tax receipts are middle of the pack in international terms but are higher than has been the case over the last few decades.
This gives advisers opportunities to demonstrate to clients the value of taking expert tax advice, to minimise the impact on them and their families.
Andrew Tully is technical services director at Nucleus
