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Treasury expects to net £185bn in income tax in 2018/19

6 June 2018

The latest HMRC data has shown that the Treasury expects to net £185bn in income tax in 2018/19, compared to £178bn in 2015/16.

However, average tax rates are set to fall from 17.2% in 2015/16 to 16.7% during the current tax year.

AJ Bell senior analyst Tom Selby said: “While the billions of pounds raised from basic, higher and additional-rate taxpayers is edging up each year, the average rate of tax people pay is actually dropping as tax bands widen and the personal allowance continues to edge upwards.

“What we are seeing here is the realisation of the Conservative Party’s primary election strategy – namely to put more money in the vast majority of people’s pockets in the hope this will translate into votes at the ballot box. Indeed, even the wealthiest in society earning £2million + are only expected to see a very marginal rise in their overall rate of tax, from 38.8% in 2015/16 to 39.6% in 2018/19.”

Selby said that while the pension tax relief annual allowance taper for those earning in excess of £150,000 is a “complex dog’s breakfast of a reform,” it will likely have the desired effect of boosting the Treasury’s coffers as the opportunity for high-earning savers to carry forward unused allowances from previous years ebbs away.

Selby added: “In fact, 2018/19 represents the last chance saloon for those who are affected by the taper to boost their annual allowance by up to £40,000 if they failed to use their pension tax-free allowance in 2015/16. From then onwards, the ability to carry forward will be limited to whatever your annual allowance has been reduced to under the taper.”

To work out whether an individual is affected by the annual allowance taper, two income measures need to be considered: adjusted income and threshold income. The former comprises all earned income, including things like investment and rental income, plus any pension contributions made during the relevant period, while the latter is simply someone’s net income – the total income minus any personal pension contributions entitled to tax relief at source.

If an individual’s adjusted income and threshold income are above £150,000 and £110,000 respectively, their annual allowance will reduce by £1 for every £2 of adjusted income earned to a minimum of £10,000.

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