Higher earners ‘particularly wary’ of upcoming Budget

Higher earners will be particularly wary of the government’s Autumn Budget amid concerns they will be subject to increased taxes, according to AJ Bell.

The firm noted that higher earners already pay a “massive chunk” of tax, with the top 50 per cent paying 90 per cent of all income tax, and the top 1 per cent paying 27 per cent of the total.

Furthermore, if an individual starts to earn more than £100,000, they face a ‘cliff edge’ and lose certain government supports.

AJ Bell head of personal finance, Sarah Coles, said that a wealth tax of 2 per cent on assets over £10m, which had been suggested by a group of millionaires, was unlikely to be announced as it was complicated to administer, unfair on those who were asset rich and cash poor, and could encourage avoidance.

However, speculation of this kind was still causing “disquiet” among savers and investors, Cole noted.

“Heros (High Earners, Rich and Older) might also be worried about potential tax changes to cover the cost of social care – and whether they would be likely to fall hardest on those who have built significant assets by the end of their lives,” Coles added.

“In the past, Andy Burnham has suggested inheritance tax ought to be scrapped and replaced with a ‘care levy’ to fund a more joined up national health service and social care system. During his by-election campaign he confirmed he wouldn’t be afraid to consider the idea again.”

While it appeared an income tax rate increase was off the cards and Burnham has previously commented about how unpopular the income tax freeze has been, Coles highlighted that there were other options.

Examples cited included moving the additional rate tax threshold to bring more people into paying 45 per cent tax, reintroducing the 50p tax rate, or increasing the top tax rate.

“One question that always comes up before a Budget is whether the tax relief on pensions is safe – something that would particularly affect higher earners,” Coles stated.

“Even if there’s nothing announced to specifically target these groups, frozen thresholds will continue to hit hard.

“When you’re on a higher income, especially if you have built assets, the stakes are higher. At the same time, some of your options become more complicated.

“It’s one reason why Henrys (High Earners, Not Rich Yet) and Heros might consider whether it’s a good idea to speak to a financial adviser ahead of any potential Budget changes.”

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