When is ‘Tax Freedom Day’?
The figures for 2022 are not published until later this year, but in the light of steeply rising energy prices, National Insurance increases, and tax changes not keeping up with inflation levels that have not been seen for a generation – we can expect ‘Tax Freedom Day’ to be even later this year, probably into June.
What is Tax Freedom Day?
For those unfamiliar with the concept, every year the Adam Smith Institute calculates the number of days the ‘average’ person would have to work just to pay off their taxes in the UK (this includes indirect taxes, see below…).
Here are some key highlights from their report for 2021:
- In 2021 ‘Tax Freedom Day’ was May 31st, which means the ‘average’ UK tax payer worked 150 days (about five months) to pay their tax bill.
- ‘Tax Freedom Day’ has been slowly moving it’s way along the calendar since 1995 (as far as the best quality data goes back).
- Everyone’s ‘Tax Freedom Day’ will be different and each of us can use allowances and legitimate tax reliefs to move that date.
Every individual will have a different Tax Freedom Day
In reality, there is no single day for everyone as there is no ‘average’ person, but the day will come later for high-earners and earlier for low-earners and the unemployed. In practice, this isn’t necessarily true because the HMRC does not simply tax income but also taxes consumption, investment and ‘sin’ activities at different rates. This includes indirect taxes (such as VAT, fuel duty, council tax) as well as direct taxes (Income Tax and National Insurance).Tax Freedom Day has trended later each year since 1995, nearly creeping into June in 2021, and very likely to do so for 2022.
Moving your ‘Tax Freedom Day’
Whilst tax is an important and widely accepted part of life, paying for certain public services, many of which have a social value far greater than their financial cost; there are also several legitimate schemes, approved by HMRC, that you can take advantage of to reduce your tax bill.
Check you are on the right tax code and claiming the correct allowances. If you’re married or in a civil relationship and your partner is a non-tax payer have you arranged your affairs in such a way that the assets that produce income are held in your partner’s name.
Married Couples Allowance
Married Couple’s Allowance could reduce your tax bill each year if you’re married or in a civil partnership. For the 2022 to 2023 tax year, it could cut your tax bill by between £364 and £941.50 a year.
Capital Gains Tax Allowance
Making use of your annual CGT allowance can save you from a nasty surprise on the eventual sale or gift of an asset. If you’re a higher rate taxpayer, and assuming you don’t require additional income, then selecting investments that produce no or little income should be considered. If this can’t be avoided then perhaps holding your investments within a product such as an Onshore or Offshore Bond may be appropriate.
Make use of your annual ISA allowance, for the 2022 to 2023 tax year the maximum you can save into ISAs is 20k. It pays to keep your savings sheltered in an ISA and moving savings from taxed deposit accounts to a tax free ISA may pay dividends in the long term.
Pension contributions attract tax relief at an individual’s marginal tax rate and can therefore be a great way of reducing your tax bill while at the same time building a fund for the future.
‘Tax Freedom Day’ is not meant as anything other than an illustration and thought provoker, providing an opportunity to think about your own tax situation.
Click on our guide below to learn more…
Make the most of your tax allowances and reliefs
Every year the government provides allowances and reliefs available for all taxpayers. Are you making the most of these? Read on to remind yourself of the opportunities there are for becoming more tax efficient. Read more…
For more information see: