Navigating an era of higher taxes

Annual revenue statistics from the OECD (Organisation for Economic Co-operation and Development) found the total tax-to-GDP ratio across the UK hit 35.3% for the 2022/23 financial year – the highest since OECD records began in 2000. The OECD’s figures also suggest the tax burden is only going to keep rising, hitting 37.7% by 2029.

Historically, it would have been high earners that would have shouldered this increase, but recent changes mean middle-income households are increasingly being tapped for more tax.

Fiscal drag

A government freeze on tax rate thresholds is mostly to blame, known as fiscal drag.

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Fiscal drag has been called a stealth tax because it doesn’t immediately stand out as being a tax increase. However, you have to give more of your earnings to the government as a percentage of your overall take-home pay. According to the Office of Budget Responsibility, thanks to the impact of fiscal drag, an extra 450,000 people will be dragged into the 45% income tax bracket by 2029.

What’s more, the government has also frozen the tax bands for inheritance tax (IHT), savings and dividend income and decreased the annual tax-free allowance for capital gains.

The impact this will have on taxpayers is huge. Estimates suggest 250,000 more people a year will end up paying capital gains tax thanks to the reduced tax-free annual alliance. Figures also suggest that thanks to the impact of inflation on asset prices, 40,000 to 50,000 extra estates a year will have to pay IHT.

These recent changes to the tax system mean it’s more important than ever to ensure you’re making the most of any available tax free allowances, such as pension contributions and ISAs. That’s why it makes sense to bring on board the help of a wealth manager.

A helping hand

Investec Wealth & Investment (UK) can help you develop a long-term plan for your wealth that considers your long-term goals and ambitions, whether it be saving for retirement, planning on the run-up to retirement, exiting a business or inheritance tax planning, to name a few.

With a financial plan in place, an investment manager can work with you to build an investment portfolio structured around your risk tolerance and long-term financial goals. Investec Wealth & Investment (UK) has a wide range of investment solutions for all goals and risk tolerances. These can be used to help clients build a portfolio from the ground up or complement any planning in place. The team can also help review any existing planning or investment portfolios if required.

A wealth manager's goal is to help you navigate the tax system and capitalise on any available tax reliefs - such as pension allowances - while ensuring your wealth keeps pace with inflation.

Indeed, while cash savings rates are close to the highest level since 2007, real savings rates (after inflation) are only slightly positive and over the past year, real rates have been negative.

When it comes to helping mitigate the impact of inflation on your investments a company like Investec Wealth & Investment (UK) can help you invest across a broad range of globally diversified assets.

Several asset classes perform well in inflationary environments with tangible assets, like real estate and Gold historically seen as inflation hedges.

Some specialised securities can also contribute to maintaining a portfolio's buying power, including value stocks, commodities and inflation-indexed bonds, assets that could be challenging for the average investor to research and acquire.

To find out more, call Investec Wealth & Investment (UK) for an initial no-obligation chat on 0808 164 1234, or visit investecwin.co.uk.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practise and can be subject to change. This article does not offer advice and the content and information about potential investments and services are designed for general use, and so cannot be considered personal to your circumstances or your financial position. The value of investments and the income derived from them can go down as well as up and you could get back less than you originally invested. Your capital is at risk. Past performance is not a reliable indicator of future returns and should not be relied upon.