Don’t let the chancellor get you down

07/04/2011

The chancellor giveth and the chancellor taketh away.

 That’s probably as good a rule as any by which to judge to actions and motives of our chancellor, George Osborne.  So while many middle income families may nominally feel better off with the increase in personal allowances last week’s budget, the cold fact is that millions will face a squeeze over the coming two years.

For example, the chancellor raised the amount you can earn before paying tax by £603 to £8,105.  This is in addition to the £1,000 increase to £7,475 for 2011-2012 announced in the previous budget.  Hurrah, we hear you say.  Well consider this.  For anyone earning more than £50,000 this ‘benefit’ will be more than offset by the 1% increase in National Insurance contributions from April.  And consider that ant benefit from the chancellor’s cut in fuel duty will be wiped out by higher road tax. 

So, rather than meekly roll over and accept our lot, here are some sound strategies you can put in place to beat his stealth taxes.

Pension: if you’re in the super tax bracket, your pension contributions will attract tax relief at 50%, so a £50,000 pension contribution will cost you only £25,000.   You can also use any of the £50,000 allowance you didn’t use in the previous three years, so you could pay up to £150,000 into your pension at a cost of only £75,000.

Capital gains: pensioners who rely on investments to boost their income can use their capital gains allowance to good effect.  They can build up a portfolio of investment funds to release up to £10,100 of tax free gains each year.

Transfer assets: if your spouse is a non-tax payer, or pays at a lower rate, you might transfer income-bearing assets such as shares into their name, to benefit from the personal allowances rises.

Salary Sacrifice: if your salary id close to the higher rate tax band, you could reduce your income for tax purposes by using a workplace salary sacrifice scheme to make pension contributions or buy childcare vouchers.

Paul Dixon

Chartered Financial Planner