HMRC tax receipts/student loan interest receipts rise

Commenting, Alice Guy, Head of Pensions & Savings, interactive investor, says: “The relentless march of fiscal drag is making us all poorer, with frozen tax thresholds making more of our income taxable as our wages rise with inflation. VAT and inheritance tax have also seen inflation-busting increases, as increasing prices mean more tax revenue for the Treasury.

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“VAT is a hidden tax, yet has a particularly stark impact on the poorest households, who spend more of their income on essentials. This means VAT makes up a bigger portion of their spending.

“If you can afford it, one of the best ways to minimise your tax bill is by paying more into your pension. Pension contributions are boosted by tax relief, and you’ll also get 25% tax-free when you come to draw a pension income. In addition, you can also pass on pension wealth free from inheritance tax to your loved ones.”

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest set of HMRC tax receipts shows that government’s stealth tax strategy continues to do its job in a big way, with tax takings remaining firmly on the upward trajectory.

“We’re facing the highest overall tax burden in a generation thanks to the deep freeze of tax thresholds and allowances which, in tandem with wage inflation, means we’ll be more in tax in the years to come. Known as ‘fiscal drag’, this is the ultimate stealth tax which feels particularly tough at a time when inflation remains high. Fiscal drag hits us all – even if we don’t change tax band. That’s because as our pay rises with inflation, more and more of our pay packet is taxed and our overall tax burden increases.

“We have seen receipts for income tax, national insurance, capital gains tax and IHT continue to rise, and the cut to capital gains and dividend tax allowances in April, and future reductions in these allowances due in upcoming tax year, will further boost HMRC’s takings.

Receipts from interest on student loan interest grows 

Myron Jobson says: “According to the latest snapshot of the public finances from the Office for National Statistics, accrued interest on student loans swelled to £3,022 in between April and August 2023, up from £1,813 over the same period in the previous year.

“The increase comes despite the government intervening to cap interest on post-2012 income contingent student loans last year in response to inflation surging to the highest levels for 40 years. Various caps have since been set during the year linked to the prevailing market rate.

“Higher interest rates mean that the total amount graduates owe on their student loans will grow more rapidly. This can lead to an increased monthly payment, which means less money to cover everyday expenditure and to save money or invest for the future.”