Big freeze in tax allowances will increase tax burden in the years to come

interactive investor comments on the latest HMRC tax receipts.

• Total receipts for April 2021 to January 2022 are £327.9 billion, which is £41.4 billion higher than in the same period a year earlier.
• Receipts from PAYE Income Tax and NIC1 for April 2021 to January 2022 are £275.9 billion, which is £27.6 billion higher than in the same period a year earlier.
• Overall Stamp Taxes and Annual Tax Enveloped Dwellings receipts for April 2021 to January 2022 are £15.1 billion, which is £5.3 billion higher than in the same period a year earlier.
• Inheritance Tax (IHT) receipts for April 2021 to January 2022 are £5.0 billion, which is £0.7 billion higher than in the same period a year earlier.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The taxman’s coffers are brimming with cash thanks to a bumper haul of tax receipts which far outstrips takings during the lockdown tax year. The UK government needs every tax pound it can get to address the colossal bill for various Covid support measures, as well as to pay for its ambitious spending commitments - to help the UK achieve net-zero carbon emissions by 2050, and on its levelling up programme, for example.

“Higher levels of employment have helped to drive up the taxman’s income tax takings following the Covid-induced malaise in the labour market. And while the stamp duty holiday has become a distant memory, the ongoing demand-supply mismatch for property has been a huge factor in the uptick in the government’s stamp duty takings.

“The freezing of a number of tax allowances until 2025/26, including the personal tax-free allowance and the higher tax threshold, the CGT, and Inheritance Tax allowances, will drag an increasing number of people into the threshold of higher taxes in the years to come. The tax burden is set to be compounded further still, with National Insurance set to increase from April, putting further strain on incomes, with workers set to pay 1.25p more in the pound from their wages - and who knows what the upcoming Spring Statement will hold.”

Inheritance tax

“The latest hike in IHT receipts is once again influenced by the freezing of the nil rate and residence nil rate bands until at least April 2026, resulting in many estates being dragged into the tax charge threshold on the back of a surge in property prices and stock market recovery from the Covid-induced crash. IHT increasingly feels like a raid on hard-working families with modest assets, property being the largest, rather than the very wealthy it was originally targeted at.”