Wednesday 18 May 2022 09:07 AM How to be a (legal) tax avoider... and beat Sunak's sneaky hikes trends now

Households should act now to fight the effect of ‘stealth taxes’ which are set to cost us an extra £7.5 billion this year.

The shocking figure was revealed by the Daily Mail this week, and comes amid the sting of rising house prices, soaring inflation, and frozen tax thresholds.

When people’s earnings rise to combat inflation but tax thresholds are static, more people are pulled into higher tax brackets. This is known as fiscal drag.

However, there are clever tricks ordinary people can use to lessen the impact — and they shouldn’t wait until the end of the next tax year.

Shaun Moore, from financial advice firm Quilter, says: ‘Do not sit on your hands — take charge of your finances today.

‘The various tax thresholds may not be as good for a long time to come.’

Here are some of the main tax drags — and what you can do about them.

Workers who receive only modest pay rises could find themselves in a tax trap.

People start paying a basic rate of tax at 20 per cent on earnings above £12,570. Once wages top £50,270, a higher rate of tax at 40 per cent applies. An annual income of more than £150,000 is taxed at 45 per cent.

In the past, these allowances have nudged higher as salaries have risen. But now they’re frozen until April 2026.

By that time, an extra two million people are likely to be in the higher-rate tax bracket, according to the Office for Budget Responsibility (OBR).

Former pensions minister Steve Webb, now a partner at financial consultancy firm Lane Clark & Peacock, calls the freezing of tax allowances and thresholds ‘the ultimate stealth tax’.

Action: Workers can keep out of the higher tax band by increasing their pension contributions. They’ll be paying their future selves and benefiting from tax-relief, too.

This method also helps parents receiving child benefit to avoid a high-income charge — a clawback of the benefit, paid to help with the costs of raising a child. It applies to incomes of more than £50,000, even though that sum still falls into the basic-rate tax band.

For example, someone earning £53,000 a year could pay £3,000 gross into their pension, leaving a net income of £50,000. 

The pension contribution would also attract tax relief. There are always caps and caveats to be aware of, however, so do your homework.

In addition, those who earn below the taxable threshold can transfer £1,260 of their personal allowance to their basic-rate taxpaying spouse using the marriage

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