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What is Tax Freedom day?
Every year, the Adam Smith Institute calculates the number of days the ‘average’ person would have to work just to pay off their taxes in the UK. It’s the day of the year, the average UK taxpayer will have earned enough to pay all of their taxes for that year. This includes tax on all income, as well as the purchase of all goods and services.
Here are some key highlights
- Brits worked 169 days just to pay our tax bill.
- Tax freedom day is now later than at any time since 1995 (as far as the best quality data goes back), and continues to trend later each year, with 2024 expected to continue that trend.
- Everyone’s tax freedom day is different and each of us can use allowances and reliefs to move that date.
Every individual will have a different tax freedom day. In theory it will come later for higher earners and earlier for lower earners and the unemployed. In practice, this isn’t necessarily true because HMRC does not simply tax income but also taxes different types of consumption, as well as investments, at different rates. This includes indirect taxes (such as VAT, fuel duty and council tax) as well as direct taxes (Income Tax and National Insurance).
Top tips
There are a few things that everyone can do to move their tax freedom day legitimately. Making sure your assets and liabilities are in the right:
- Name (should the assets be in your name, your partner’s, or both your names?)
- Ownership (is the person you want to benefit nominated correctly?)
- Tax shelter (are the various allowances and reliefs used to ensure you do not lose money unnecessarily to HMRC?)
Getting help
By ensuring the right name, ownership and tax shelters for your assets you can, legally and ethically, move your tax freedom day. This is a significant part of the value that a financial adviser can provide for you.
Tax freedom day is not a literal event. Nothing actually happens on that day, but it is meant as an illustration of the personal tax burden, and is a thought provoker to really bring home the extent of taxation and how you can help address it. I hope this helped you also.
References
Tax Freedom Day — Adam Smith Institute
Approver Quilter Wealth Limited, Quilter Financial Limited, Quilter Financial Services Limited & Quilter Mortgage Planning Limited. April 2024.