Tax breaks on savings and investments shrink as a percentage of tax take – savers urged to use tax reliefs as much as possible

by | Mar 13, 2023

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Tax incentives granted to people in the UK on their savings and investments now amount to only 4.2% of HMRC’s total 2021/22 tax take, a decrease from 5% in 2020/21, shows new research from Bowmore Financial Planning.

The use of tax incentives is essential for those wanting to maximise the value of their savings and investments. Incentives available on savings and investments include tax reliefs on pensions contributions, Individuals Savings Accounts (ISAs), and Venture Capital Trusts (VCTs). 

The Government has introduced fewer new tax incentives in recent years and has now progressively reduced the amount that high earners can contribute to pensions annually. This has resulted in a significant dip in the value of pension scheme tax relief claimed in the past year (see table below). 

Additionally, eligibility criteria for Enterprise Investment Schemes and Venture Capital Trust investments have been restricted, reducing the opportunities to utilise tax relief on these schemes. 

 
 

Mark Incledon, CEO of Bowmore Financial Planning, says that the Government should consider that tax incentives which encourage savers to invest wisely benefit the entire economy. It should look at expanding upon these schemes, as opposed to decreasing tax breaks.

Aggressive reductions in pension tax relief in recent years have caused more NHS doctors and consultants to retire early or enter private practice. This helps them reduce the risk of being hit by significant tax charges on their pension contributions.

Mark Incledon adds that savers and investors need to consider maximising what tax incentives are available to them every year, particularly as these incentives are subject to change with short notice.

 

The Government is looking to plug the gap in its finances following recent economic turbulence and may see reducing tax breaks, as an area where money can be brought in. 

Mark Incledon says: “We’ve seen the value of tax incentives shrink slowly but surely over the past few years. It’s highly possible that we’ll see even further reductions in future.”

“It’s essential that savers are taking advantage of what incentives are available to them at the current time – especially since they are subject to change with little to no warning.”

 

“Savers who are looking to invest their money should do so with carefully considered and professionals advice. However, tax reliefs allow investors to maximize their savings and make their money work harder for them.”

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