Leading independent financial experts MacDonald & Co are urging millions of soon to be higher-rate taxpayers to consider investing in their future to soften the blow of the Government's new levy on the middle classes.
Recent changes made by the Chancellor of the Exchequer George Osborne have seen the personal tax allowance increased by £1,000 from £6,475 to £7,475. However, the Chancellor has come in for severe criticism for reducing the band at which higher rate tax is paid by £2,500.
According to the Institute of Fiscal Studies (IFS) the decrease could drag an estimated 3.5 million people into the 40 per cent tax bracket, including many middle-class professionals such as teachers and nurses who previously outside the net.
“On the basis of the changes they are proposing some people will have an extra £300 of tax to pay per year,” said Robert MacDonald, a leading adviser with Glasgow-based independent financial experts MacDonald & Co.
“As it stands just now the higher rate threshold is £37,400 but that’s reducing to £34,900 in April.
“It’s a big reduction and the only way to reduce that is to invest this £1,500 through a pension contract so that the tax relief comes back to make up the difference.”
While investing in a pension contract could see tax payers mitigate the tax increase Mr MacDonald admits such a long term measure might have a limited appeal.
“At the end of the day people might say well I would rather have 60 per cent of something now than none of it because if you invest through a pension you don’t have it in your bank account,” said Mr MacDonald.
“If you want to save the tax then you can’t get it just now because you’ve got to use a pension contract that you cant access until age 55 at the earliest.
“There are some people who will be able to live with it because of their income but for others it will hit them hard.”
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