The ups and down of tax income
For many the summer holidays have finally arrived as many schools broke up last week, and I expect from now till early September our email boxes and life in general will be a bit quieter. Will this period of supposed calm provide an opportunity for us to catch up on those pressing tasks or even finally start working on that to-do list? I expect not.
With the family holiday being front of mind for so many, I do hope the stress that always comes along before leaving is not too bad this year, why is it clearing our desks before we go has turned into such a mammoth challenge?
I have decided to let the newsletter have a summer holiday, and it will return in September hopefully with a new look as I take some time out to think about the look, feel and regularity. If you have any suggestions for improvements or even ideas, then please email me at jreeves@taxmatters.tax
Before I head off in my caravan for a couple of weeks away I thought I would share the ups and downs of the UK tax income and the impact of the recent national Insurance cuts, you may be surprised at some of the results.
Happy Holidays!
The ups and downs of taxable income
Despite two national insurance cuts this year, income tax revenue continues to rise. From April to June 2024, PAYE income tax and national insurance contributions (NICs) totalled £195.1bn, a significant increase of £4.7bn compared to the same period in 2023. This growth is largely due to frozen tax thresholds, which have pushed more people into higher tax brackets.
The recent hike in corporation tax to 25% has significantly increased business tax receipts. This quarter saw an additional £1.7bn, bringing the total to £20.5bn. The higher rates in corporation tax, along with an extra £1bn from income tax, have offset the drop in NICs following the 4% cut initiated by former Chancellor Jeremy Hunt.
Inheritance tax continues to increase steadily, although there was a decline from the £795m collected in June 2023. From April to June 2024, inheritance tax revenue was £2.1bn, an increase of £83m from the same period in 2023. However, June saw a decrease, with £94m less collected compared to June 2023.
Income tax receipts for April to June 2024 increased by over £4bn due to the decrease in NICs and the impact of static tax thresholds. The total income tax take for this period was £67.6bn, up from £63.2bn in 2023. In June alone, PAYE income tax reached £19.2bn, an increase of almost £800m from June 2023.
NICs have decreased since the rate was cut from 12% to 8%. From April to June, NICs revenue was £41.9bn, down from £44bn in 2023. June saw NICs revenue of £12.4bn, a £1.4bn drop compared to June 2023. Despite the NICs rate reduction, the combined revenue from PAYE income tax and NICs has increased by £2.5bn compared to the previous year.
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, noted, "The tax take continues to soar. National insurance rates may have been slashed, but even this hasn’t stopped the upward momentum—receipts for income tax, capital gains tax, and national insurance are up £1.9bn so far this tax year. Inheritance tax receipts are also on the rise. Frozen tax thresholds sound less daunting than tax hikes but are very effective at pulling more people into paying more tax. With these threshold freezes in place until 2028, we will see our budgets squeezed for some time yet."
Revenues from stamp duty land tax (SDLT) are also increasing, with over £1bn collected in June. However, this figure is still below the highs seen in 2021 and 2022. There are calls for Chancellor Rachel Reeves to address this in her first Budget, as a temporary freeze on lower rates of SDLT for first-time buyers is set to expire in April 2025.
Jonathan Stinton, Head of Mortgage Relations at Coventry Building Society, commented, "The new government has been fairly mute on stamp duty so far, but silence definitely isn’t golden when it could end up costing homebuyers thousands of pounds in extra tax. If we don’t hear anything between now and next April, those looking to buy an average-priced home will have to pay an additional £2,500 in property tax."
By 2028, the Office for Budget Responsibility predicts the number of deaths resulting in inheritance tax liability will rise to 6.3%, the highest since the 1970s. Additionally, the total inheritance tax take is expected to reach nearly £9bn by 2028/29.
Capital gains tax (CGT) has seen its first decline in five years, with £15bn collected in total, nearly £2bn less than the 2022/23 tax year. In 2019, £9.9bn was paid in CGT, which peaked at £16.9bn in 2022/23. The 2021/22 tax year saw a 32% jump from £11.6bn to £15.3bn.
Majid Hussain, the partner at Haysmacintyre, remarked, "Although the fall in capital gains tax receipts could seem relieving, this may just be a reflection of individuals’ and businesses’ behaviour as 'normality' returns following two years of considerable high-value disposals."
The evolving landscape of UK taxation, marked by rising income and inheritance taxes despite cuts in national insurance, presents significant implications for financial planning. As tax thresholds remain frozen and new policies unfold, understanding these trends will be crucial for navigating future financial challenges.
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