UK households warned over higher-rate tax rate being cut by £11,059

UK households warned over higher-rate tax rate being cut by £11,059
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UK households have been warned over the higher-rate tax treshold being cut by £11,059. The 40% tax bracket is the 'higher rate' income tax band for those who earn between £50,271 - £125,140. There are four rates for income tax, starting with the personal allowance, and then moving on to the basic rate, higher rate, and the additional rate.

Sarah Coles, head of personal finance at Hargreaves Lansdown, warned: “The taxman has set an array of sneaky traps for millions of higher-rate taxpayers. They’ll be painfully aware of the income tax trap, which has plunged almost two million more people into paying higher-rate tax since April 2021.

"However, there are other more stealthy traps ready to catch them and empty their pockets.” The warning comes as frozen tax threholds mean more and more people face being dragged into a tax charge from the tax arm of the new Labour Party government.

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The higher-rate tax threshold has been frozen at £50,270 since April 2021, even as wages have risen 22 per cent since then. If the threshold had kept pace with wage inflation, it would now be £61,329 - meaning people have lost £11,059 worth of tax free allowance.

Ms Coles urged households to pay into a pension and make sure they escape the High-Income Child Benefit Charge. Use pensions to stay below the £100,000 threshold and remember to maximise your capital gains tax allowance, Ms Coles said.

Ms Coles said: “If you’re married or in a civil partnership and your partner pays a lower tax rate, you can transfer income-producing assets into their name. It means you can both take advantage of your tax allowances.”

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Eligible couples can also claim the Marriage Allowance, which lets a lower-earning partner transfer up to £1,260 of their unused personal allowance to a higher-earning partner, saving up to £252 annually, the personal finance expert has said.

Couples should also consider utilising tax-efficient vehicles like ISAs, pensions, and Junior ISAs for their children to maximise tax savings.