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Tax freedom day arrives - but it's three days later than last year

We look at why the tax burden is increasing and how to pay less tax on your investments.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Last Tuesday was 'tax freedom day' - the hypothetical day when the average UK worker stops working for the government and starts working for themselves.

It’s calculated by the Adam Smith Institute, and it’s often used to show whether the total tax burden is rising or falling. The later the day falls in the year, the more tax we’re collectively paying.

Latest since records began

This year tax freedom day fell three days later than last year, on 29 May. This means we’ve been working for 148 days just to pay our tax bill. From 29 May we’re working for ourselves.

It’s also the latest since records began in 1995 – though the Adam Smith Institute noted it likely would have fallen later at times in the 1980s and 1970s.

As the graph shows, the trend over the past couple of decades has been for higher taxes - whichever party has been in power.

If you've got capital, you're a target

The public finances still aren’t in great shape.

Despite the efforts of successive governments to reduce the deficit, it still stands at more than £40bn (in the twelve months to March). This means the government’s still spending more than it makes in tax revenue, and the national debt is still rising.

An ageing population creates more demand for health services and makes it hard for the government to spend less. Meanwhile the economy isn’t growing fast enough to generate meaningful increases in tax revenue.

Against this backdrop there are growing calls for future taxes to focus on wealth, rather than income.

This means that if you have savings and investments, you’re a potential target for these taxes.

How to pay less tax and keep hold of your money

The first thing to note is that tax rules can change. And they regularly do.

So short of emigrating, there’s nothing you can do to completely remove the risk of higher taxes on your money.

But under the current system there are simple – and legal – ways to pay less tax.

The simplest is the ISA.

An ISA is an account where you can hold cash or investments, sheltered from UK tax. You pay no UK tax on any income, and no capital gains tax if you make a profit. You can put up to £20,000 into ISAs this tax year.

More about ISAs

There are also generous tax reliefs when you’re saving for retirement.

When you put money into a pension, you get tax relief on your contributions. The government automatically adds basic rate relief, and higher/additional rate tax payers can claim back more on their tax return. Any tax benefits will depend on your individual circumstances.

Once the money’s in your pension it can grow free of UK income and capital gains taxes. When you retire (after age 55, rising to 57 from 2028), you can usually take 25% of your pot tax-free, and use the rest to provide a taxable income.

More about pensions

Where to invest

You don’t need to rush your investment decisions.

You can get your money sheltered from tax in an ISA or pension straight away, and decide where to invest later. There’s no need to pick funds or shares until you’re ready.

But we see plenty of opportunity in the markets at present. If you’re looking for investment ideas, here’s a selection to consider. Remember investments can fall in value, so you could make a loss.

April's most popular ISA funds

Ideas for investing in emerging markets

Two funds investing in smaller companies

April's most popular shares

This article and our investment ideas aren’t personal advice. You should choose investments based on your own objectives and attitude to risk. If you aren’t sure whether an investment’s right for you, or if you’d like help organising your affairs to pay less tax, please ask us about financial advice.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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