Tax incentives hit record high at £25.6bn

Tax incentives hit record high at £25.6bn

Tax incentives secured by individuals on savings and investments hit a record high of £25.6bn last year, making them vulnerable to potential cuts, according to an adviser.

According to data from HM Revenue & Customs, and analysed by Salisbury House Wealth, incentives granted to individuals on savings and investments in the 2019/20 financial year jumped to £25.6bn, up 3 per cent on £24.8bn the previous year. 

These types of incentives include tax relief on pension contributions, individual savings accounts and venture capital trusts. 

But Salisbury House warned the incentives could be targeted by the government as a means to covering the exponential public spending seen during the coronavirus pandemic. 

Tim Holmes, managing director at the advice firm, said: "Although cutting tax incentives on savings and investments could be an easy target as the Treasury looks to increase tax receipts, the government needs to exercise caution.

"The constant chipping away at tax incentives, particularly on pensions, undermines the attractiveness of savings to middle earners as well as high earners. It risks deterring individuals from saving enough for their retirement which could be detrimental further down the line."

Last month MPs called for a review of pension tax relief in the UK, warning the government knew "too little" about whether the current system offered value for money or encouraged saving for retirement.

A scathing report published by the Public Accounts Committee warned the Treasury and HMRC had made "unacceptably slow progress" in improving their management of tax reliefs.

Salisbury House said tax incentives had also played a notable role in encouraging private investors to fund smaller, higher-risk businesses through VCTs and through enterprise investment schemes. 

Earlier year this year the government was urged to shake up the tax relief awarded to these investing in these types of start-ups to provide a lifeline for UK small businesses during the coronavirus crisis.

Mr Holmes added: "It is important that individuals do not base their investment decision making purely on whether that kind of tax relief is available.

"Tax reliefs should be secondary to the overall investment performance expected. Don’t let the tax savings tail wag the dog." 

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