FAMILIES are having to hand over more than half of their income to the taxman
when you factor in council tax, Vat, fuel and stamp duty, according to new
research.
In the latest sign that the tax burden has soared under Labour, a study by
accountant Grant Thornton found that a family with a household income of
£100,000 would have to pay £53,500 in tax if they moved house this year – an
effective rate of 53.5%. A family with a household income of £50,000 would
have to fork out nearly £28,000, or 56%, including stamp duty.
Even if families are not moving home, the typical tax burden is higher than
the top rate of income tax at 40%, according to the research. The £100,000
household would pay total taxes of nearly £43,000 a year, or 43%, while the
family on £50,000 would pay £21,000 a year, or 42%. This assumes the
stamp-duty burden is spread over several years.
Mike Warburton of Grant Thornton said: “The tax burden has doubled under
Labour, but that doesn’t tell the whole story. Stamp duty has quadrupled,
which is why families moving home feel particularly hard done by. Add in the
fact that petrol has gone up, both in terms of tax and the actual price, and
council tax has in many cases doubled in 10 years, and it’s no wonder we
feel heavily taxed.”
Grant Thornton took a family where one parent earned £70,000 and the other was
on £30,000. Their total tax and National Insurance contributions (Nics)
would come to £30,937. On top of that, they would pay council tax of £1,320,
up from just £688 10 years ago.
Martin Ellis, chief economist at Halifax, said: “Council-tax bills have
increased significantly faster than either average earnings or retail prices
over the past 10 years. It is unfair because bills diverge across the
country and increases over the last decade differ by a wide margin between
billing authorities too.”
Our £100,000 family would also pay Vat of £5,000 on their spending, £600 on
alcohol and £1,300 in fuel and vehicle excise duty. The killer, though, is
stamp duty. Grant Thornton assumed the family moved to a typical detached
property in the southeast, worth £479,398, according to Halifax. They would
pay stamp duty at 3%, or £14,381. Ten years ago, the rate on the same value
property would have been only 1%, or £4,794.
So in total our family pays £53,539 in tax – an effective tax rate of 53.5%.
Families do not move house every year, of course, but stamp duty is a real
burden for many, with some having to borrow the money and add it to their
mortgage because they do not have thousands of pounds to spare.
Ellis said: “The revenue generated from stamp duty on property purchases has
soared in the last 10 years because the government has failed to link
thresholds to house-price inflation.”
For a single-earner family on £50,000 a year, the story is much the same.
Their total tax and Nics would come to £14,862. On top of that, council tax
would be £991, up from £516, a decade ago.
They would also pay Vat of £2,500, alcohol duty of £300 and fuel and vehicle
excise duty of £650. If they moved to the typical semidetached property in
the southeast worth £284,682, they would pay stamp duty of £8,540 – a total
tax burden of £27,843, or 56%.
Thankfully, there are lots of simple ways to trim your tax burden, although
many people fail to do so, either because they do not understand the system
or because they forget to claim benefits available to them.
David Elms of the independent advisers’ association, Unbiased, said: “Our 2007
tax report shows that, as a nation, we will waste £7.9 billion by not taking
advantage of tax breaks this year.”
Don’t dismiss tax credits
Many families fail to claim tax credits because they think they are available
only to those on low incomes. However, Warburton said: “The family element
of the child tax credit is available to all families with an income of up to
£58,000, or £66,000 in a child’s first year, and is worth up to £545 a
year.”
Childcare vouchers
If your employer offers the scheme, you swap part of your salary for vouchers
worth up to £55 a week, which you must put towards a government-register-ed
nursery, child minder or nanny. The money is paid before income tax and Nics
– a saving of more than £2,000 a year if you are both higher-rate taxpayers,
according to Grant Thornton. Find the forms at hmrc.gov.uk.
Use spouse’s allowances
Other sensible measures for couples include ensuring that any assets are held
by the spouse with the lowest income for tax purposes, and transferring any
assets you plan to dispose of between spouses to take advantage of both
individuals’ £9,200 capital gains tax (CGT) allowances.
When cashing in life-assur-ance plans it is worth assigning the policy to the
lower earner beforehand as a means of cutting the tax payable.
Cut your Vat bill
While it is hard to avoid Vat, energy-efficiency measures such as home
insulation are taxed at a lower rate of 5%, as is heating fuel. Energy bills
are not therefore included in our calculations.
Conversions or renovations of residential property are taxed at the lower 5%
rate too, while food and children’s clothes are also Vat free, though eating
out is taxed at the full 17.5% rate.
Child trust funds
Recent figures from Unbiased show that parents of young children eligible for
the child trust fund (CTF) are wasting £125m by failing to pay in the
tax-free allowance of £1,200 a year.
Elms said: “The government introduced CTFs as a way of helping parents plan
for their children’s futures. However, our research has shown that parents
are not making the most of this opportunity.”
HOUSE MOVE PUSHES INTO 53% BRACKET
CLAIRE and David Allerton from Suffolk will pay 53% of their income in taxes
this year because they are moving house and are about to face a £7,980
stamp-duty bill. Claire stays at home to look after their daughters Mollie,
nine, and Violet, two, but her husband David, an IT director, is a
higher-rate taxpayer.
On top of his income tax and National Insurance, the family spend about £1,440
on fuel and vehicle excise duty because they have a 4x4. Vat on their
spending comes to £1,874, while their council tax is £1,300.
Claire said: ‘I certainly feel overtaxed. Not only is petrol above £1 a litre,
but the tax is up, too, and we are considering getting a smaller car. Stamp
duty is certainly the worst. We just didn’t have nearly £8,000 lying round
to pay the tax bill, so we have had to borrow the money and add it to our
loan.’
WHAT THEY REALLY PAY
Council tax £1,300
Vat £1,874
Alcohol duty £348
Petrol, vehicle duty £1,440
Stamp duty £7,980
Other indirect taxes £269
Total effective rate 53.4%
Source: Grant Thornton
CAUGHT OUT BY THE REVENUE ON NEW HOME FOR BABY
CRAIG SHAW and his fiancee, Helen Cooper, are higher-rate taxpayers, but will
pay more than the top 40% rate of income tax this year because they have
moved house.
Craig, 34, head of operations for a chemicals company, and Helen, 30, a
marketing manager, recently moved into a family home at Stoke Poges,
Buckinghamshire, after the birth of their son Fraser, 10 months.
When they factor in the £14,880 that they have had to pay in stamp duty on
their new home, their effective rate of tax soars to 52%.
However, they can cut their rate to 50% by taking advantage of their
employer’s childcare vouchers, which save them nearly £2,000 in tax and
National Insurance contributions (Nics) every year. The vouchers allow for
childcare to be paid out of pretax income, saving income tax and Nics of up
to £55 a week each.
Helen said: ‘Having a new baby is hard on the family finances and stamp duty
certainly doesn’t help. It is outrageous that we have had to pay nearly
£15,000 in tax simply because we want a better home for our baby.’
WHAT THEY REALLY PAY
Council tax £2,160
Vat £2,793
Alcohol duty £570
Petrol, vehicle duty £550
Stamp duty £14,880
Air passenger duty £160
Insurance premium tax £45
Total effective rate 52%
Source: Grant Thornton
