Income tax hike most feared potential change in Budget

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Our research shows that an income tax hike is the most feared potential change in the Budget – worrying 16 per cent of people, 20 per cent of Millennials, and 25 per cent of higher rate taxpayers.

“As the speech creeps ever-closer, the chatter around income tax has intensified. It’s no wonder it has come up.

“Income tax makes up almost a third of all tax that’s collected, so a relatively small change could make an enormous difference to the Treasury.

“One idea up for debate is taking 2p off National Insurance and adding it to income tax, which has been proposed by the Resolution Foundation.

“It highlighted it could raise £6 billion, without affecting the tax bills of people receiving income from employment under state pension age – and therefore technically avoiding hitting ‘working people’.

“However, it would hit several types of income which are currently subject to income tax and not National Insurance.

“This includes pension income, earned income from people over the state pension age, income from investments outside tax wrappers, and income made by landlords and self-employed people.

“Someone on a total pension income of £35,000, for example, currently pays £4,486 in income tax at 20 per cent. A rise to 22% would mean they pay £449 extra a year.

“If you’re concerned about what this might mean for your retirement, you can consider using cash and stocks and shares ISAs alongside your pension.

“Income you take from an ISA is tax free, so it gives you real flexibility in managing your tax bill in retirement.”