Britons now pay so much tax that the so-called ‘Tax Freedom Day’ is this year three weeks later than it was in 2022.
It takes place this Thursday June 12. Just three years ago it was on May 22.
Tax Freedom Day is calculated by the Adam Smith Institute, which estimates that every penny the average person earned for working up that day went directly or indirectly to HMRC.
Analysing the reasons behind the late date this year, Sarah Coles – head of personal finance at business consultancy Hargreaves Lansdown – says:“Real pain has come from a horrible stealth tax – the freeze in income tax thresholds, which has pushed millions more people into paying tax – and millions into paying tax at higher levels.
“In 2024/25, there were 37.7 million taxpayers, and we handed over an eye-watering £301.9 billion in income tax – up 10% in a year and up 37% since 2021/22.
“The pain is far from over, because these thresholds are frozen until 2028.”
She says the attacks do not stop there – and that is even before tomorrow’s Spending Review which may include concealed implications for taxpayers.
Coles continues: “Investors have also been clobbered by the cutting of the dividend tax allowance from £2,000 to £500, and the hiking of the rate – plus the cutting of the capital gains tax allowance from £12,300 to £3,000, and the introduction of higher rates on gains from stocks and shares.”
She offers advice on how landlords and others can bring forward their own ‘tax freedom day’ as much as possible.
Income tax – “There are several ways to tackle an income tax bill. You have a pension allowance each tax year of up to £60,000, so it’s worth considering whether you can pay in more, and reap the tax benefits.
“Contributions to pensions attract tax relief at your highest marginal rate, and the first 25% taken from the pension is usually tax-free. Paying into a workplace or SIPP won’t leave you with more cash in your pocket, but will mean you’re handing over less of your money to the taxman.
“If your employer runs a salary sacrifice scheme, you can give up a slice of your salary and take the difference in pension contributions – so you don’t pay tax or national insurance on this portion of your income.
“Income tax isn’t just levied on your income, but on any interest from savings above the personal savings allowance, and any income from bonds too. ISAs can protect both from this eye-wateringly expensive tax.
“There are also a limited number of products that are tax free, the most popular of which is premium bonds. You won’t receive any interest on money held in the bonds, but if you win a prize of any size, you won’t pay any tax on it.”
Tax on investment – “Investors can protect themselves from dividend tax and capital gains tax by selling assets (trying to keep gains within the capital gains tax allowance of £3,000), and then using the Bed & ISA process to move up to £20,000 into an ISA.
“If you have both growth and income assets outside your ISA, it usually makes sense to hold income-producing assets within an ISA because the rate you pay on income tends to be higher than that on capital gains, and you can choose when to take gains, whereas you can’t usually choose when to take income.
“If you’re married or in a civil partnership, you can transfer assets between spouses without triggering a tax charge, so you could hand over enough assets for you both to realise gains within your CGT allowances, receive dividends within your dividend allowance, and take advantage of both your ISA allowances each year.
“In this case, if you’re going to continue receiving dividends outside an ISA and above the allowances, it makes sense for income-producing assets to be held by the spouse paying the lowest rate of tax.
“If you’re aged 18-39, and are saving for a first property or for retirement, you can save or invest £4,000 of your ISA allowance in a Lifetime ISA.
“In addition to the tax benefits, the government offers a 25% top up – boosting the LISA from £4,000 to £5,000 overnight. Don’t forget Junior ISAs or JSIPPs too for younger members of the family.”
