Interest Rates and Tax
Over the past year, we have seen interest rates increase.
Currently, at the time of writing, they are 4%, and whilst we expect another rise (or two), we hope they will be small.
High-interest rates are a cause for concern, especially for people with mortgages. I’m sure those of us a little older can remember when rates were considerably higher. The average rate over the
last 50 years has been just over 7% though we are not expecting to reach that this time. The all-time highest rate was 17% in November 1979, and the lowest was 0.1% in March 2020.
It will be tough to reduce rates without fueling inflation, so I think that, although rates will come down later in the year, they won’t be by too much or too quickly. Mortgage rates have been going down for a month now and long-term rates are coming close to being reasonable again.
Tax is very high and, in my opinion, still unfair in certain areas. Many individual rates have not been increased percentage-wise, but don’t be fooled. The government will receive a lot more money this year and in future years. The rates may not have gone up but we will all be paying more because allowances before you pay tax, have not increased. Which means that as our income goes up, we have more liable for tax.
With tax allowance rates having been frozen at 40% until 2028, it means that many more people fall into the high-rate taxpayer bracket, even with low annual increases.
From April 2023, the allowance before hitting 45% has reduced considerably.
It has been about 80 years since personal tax rates hit their highest at 99.25% and just 50 years since they were 75%. Rates may not be going up drastically at the moment, but by reducing allowances they are going up in real terms.
Last year investment returns were hit, and although 2023 is starting to show strong returns, now is the time to be smart about taxes and taking advantage of tax reliefs will help.