Six tax rises to hit your finances next year – from council tax to pensions

MILLIONS of people are set to be hit with tax hikes next year – here are the ones that could affect you.

The increases will be a blow to many households who are already struggling to cope with the soaring cost of living.

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This month inflation hit a decade high of 5.1%, pushed up by soaring petrol prices and energy bills.

But there is more misery to come for millions of taxpayers, with hikes to income tax, capital gains tax and council tax all on the horizon.

As well as a number of tax hikes, there are plenty of price rises on their way.

Train commuters will see the cost of their tickets rise by 3.8% in March, the Department of Transport has confirmed.

That’s the biggest increase to train fares in nine years.

Energy bills are set to continue soaring too, as one firm has predicted the average bill will reach £1,800 by April.

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Here are all the tax increases you need to know about for 2022.

Council tax

Around two-thirds of 121 councils asked by the BBC said households could be facing a higher council tax bill next year.

There are estimates that some areas will see their bill go up as much as 9%.

If your local authority increases council tax in your area, the rise will kick in in April and you’ll be notified a few weeks before.

You can check on the gov.uk website to see how much your council tax is by looking at which band you’re in.

National Insurance

National Insurance Contributions are going up by 1.25% next year to help cover the spiralling cost of social care for local councils.

A new health and social care levy comes into effect from April and could add hundreds of pounds a year to your tax bill.

How much the increase affects you, depends on how much you earn.

Someone on a £25,000 salary will pay an extra £193 a year in NICs after the hike.

Those earning £50,000 will pay an extra £506 a year, and workers on a £75,000 salary will pay £818 more.

Income tax

Workers are set for another blow in 2022, as income tax bands are being frozen.

That’s a problem for workers because usually the income tax bands rise in line with inflation each year, to keep your take-home pay in line with the cost of living.

If your salary increases but the income rate bands are frozen, you pay more tax.

Currently, the basic rate income tax kicks in on earnings above £12,570 – so anything you earn under that amount is tax free.

After that, you pay 20% income tax on your salary.

The higher rate threshold is £50,270 – and you pay 40% income tax on earnings above this amount.

The income tax bands are set to remain at these levels until April 2026, eating into people’s take-home pay.

Someone on a £30,000 salary who gets a 3% wage increase, will pay an extra £180 a year in tax from April as a result.

Inheritance tax

Inheritance tax is one of the most-hated levies out there, and the rate is also being frozen for another year.

Currently, an individual’s estate can pay of £325,000 before IHT kicks in, and anything above that amount is taxed at 40%.

It’s estimated that the Treasury made £5.4million from inheritance tax last year, and this is set to rise.

NFU Mutual estimates that by 2025, the government will earn more than £7billion a year from inheritance tax.

Soaring house prices mean that more people than ever are liable for the tax.

There had been calls for inheritance tax to be simplified and for the rate to be increased but this has so far not happened.

Lifetime allowance

The pension lifetime allowance is the amount you can save into your pension before you start to be taxed.

This is another one which has been frozen until 2026, and currently sits at £1.07million.

While that might sound like an awful lot of money, a number of public sector workers on generous final salary pension schemes such as doctors and teachers will end up exceeding this amount.

If you breach the lifetime allowance, your savings start to be taxed at a hefty 55%.

Critics have slammed the tax for years, saying it discourages people from saving for retirement and should rise in line with inflation to reflect the soaring cost of living.

Capital Gains Tax

You pay capital gains tax if you sell an asset for a profit, including shares and investments not held in a tax-free Isa, a second home or buy-to-let property, or belongings such as paintings, antiques and jewellery.

Each individual gets a capital gains tax allowance every year, which resets with the new tax year each April.

But the threshold has been frozen at £12,300 for a number of years – that’s despite the average cost of property being significantly higher and the stock market having soared.

The Revenue already pockets around £9billion a year from this tax, and there are estimates that this will double within five years.

This post first appeared on thesun.co.uk