Income tax warning: Rates may be raised as 72% of MPs want taxes to rise
Income tax is levied on anyone who earns more than £12,500. There are tapered rates in place and most people will pay 20 percent, with high earners paying up to 40 or 45 percent.
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A recent survey from “The House”, a subsection of politicshome.com that focuses on the latest insight from Parliamentarians, revealed that 72 percent of MPs believe that taxes should rise to fund public services.
These thoughts could be the result of coronavirus issues, as the disease continues to place strain on government resources.
Rachael Griffin, a Tax and Financial Planning Expert at Quilter, commented on what this all could mean for the UK at large: “The government has provided unprecedented financial support to tackle the economic effects of Covid-19 and as we move out of the initial lockdown, speculation continues to build on how the government will eventually settle the bill.
“With further austerity ruled out by the Prime Minister, the Chancellor is under increasing pressure to find a solution that is both politically acceptable, and economically practical.
“The survey shows that there is a clear acceptance among MPs that taxes will have to rise in future to pay for the financial measures and to support our public services.”
Rachael went on to evaluate how these increases could be rolled out: “The Treasury may increase income tax rates. Taxes on income make up the largest proportion of the government’s coffers so even a fairly marginal change would have a big impact on the impending deficit.
“However, any tax that reduces disposable income during a downturn will be hard to stomach, and so it is likely that income tax rates will remain unchanged in the short- to medium-term but will then increase in the long term, as the government sends a signal to the markets that they are committed to reducing the deficit.”
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The modern economy has been criticised in recent years for creating a widening wealth gap.
Because of this, several experts and institutions have suggested that a “wealth tax” could be appropriate given the circumstances.
While some may feel that a tax of this nature may be unlikely, Rachael theorises that it may not be so farfetch’d: “There is also growing speculation that a one-off or ongoing levy on personal wealth could be implemented in the UK to rebalance the wealth distribution and provide a significant boost to government revenue.
“However, there are a number of practical and political difficulties associated with a levy on wealth, so it is likely that any change to the taxation of wealth will take the form of changes to Capital Gains Tax and Inheritance tax.
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“In this period of economic uncertainty, one thing is clear: anything and everything will be on the table and we will see a flurry of fiscal changes from the government in the months and years ahead that will radically alter the tax landscape.”
Some people may be able to claim tax relief which will mean that they pay less tax to take into account money spend on specific things like business expenses.
On top of this, it may be possible to get tax back or get it repaid in another way, such as going into a personal pension.
Some of these reliefs will be applied automatically but others will need to be applied for.
Income tax itself is not exclusivley levied on salaries on wages. It is charged on many different forms of income which includes:
- money earned from employment
- profits made if a person is self-employed
- some state benefits
- most pensions, including state pensions, company and personal pensions and retirement annuities
- rental income
- benefits received from a job
- income from a trust
- interest on savings over a savings allowance
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