Publications featured in include: Accountancy Today and The Morning Account
- Government spending in response to coronavirus could result in higher future tax bills for younger generations
Our research shows that the amount of income tax paid by millennials (individuals aged 23-39) in the UK hit a record high last year, increasing 13.4% to £34.4bn, up from £30.4bn* the previous year.
Millennials and the younger, Generation-Z may also face higher tax bills in the future to cover the dramatic increase in public expenditure that has accompanied the coronavirus lockdown.
The Government has introduced huge support packages to help businesses and individuals survive the economic impact of the coronavirus lockdown. The Office for Budget Responsibility estimates the Government could spend as much as £300bn over the next year alone
Millennials already face a rising tax burden due to a process called “fiscal drag”. This is where the thresholds at which people pay higher taxes, or tax and national insurance brackets increase at a slower rate than inflation putting more millennials onto higher tax rates.
In addition, millennials are more likely to be hit by future rises to taxes such as NICs, which have been on the rise in recent years, than baby boomers. This is because older generations are more likely to have already retired, so do not pay NICs on their income (from their savings). Millennials are also more likely to be caught by any new restrictions on the amount that individuals can save tax free through pensions.
The amount of income tax paid by millennials has now increased 78% over the last five years, up from £19.3bn in 2013/14 – please see below.
Younger generations are also experiencing significant increases in income tax bills. Generation Z (individuals aged 23 and younger) saw a 112.9% increase to £0.35bn last year.
Currently, Generation X (individuals aged 39-55) has the biggest income tax bill at £79bn, increasing 5% from the year before. The income tax bill for baby boomers (individuals aged 55-74) decreased 2% to £55.5bn over the same period.
Neela Chauhan, private client services partner in our London office, says: “Rising salaries and static tax brackets mean millennials are paying more in income tax than ever before.”
“Massive coronavirus stimulus measures will have to be paid for at some point and it is likely that this will be done through higher future tax rates. This means that millennials and Generation Z will pick up most of the tab.”
“To help ease the burden on millennials, the Government needs to more regularly review income tax brackets. Failing to do this regularly enough cuts into the disposal income of millennials and in turn, reduces their ability to save or pay down debts.”
Income tax bill at record high for millennials at £34.4bn – amount of income tax paid broken down by age group