Value Added Tax (VAT) is to increase to 20 per cent on 4 January next year, Chancellor George Osborne confirmed today.

Osborne said that the years of ‘debt and spending’ had made today’s announcement unavoidable. He said that this single tax measure will generate over £13 billion in extra revenue over the next year.

He added, ‘I can also give this house the commitment that we will keep everyday essentials exempt from VAT in this parliament.’

The Chancellor also added that Capital Gains Tax (CGT) will rise to 28 per cent at midnight tonight for higher rate earners. Low and middle-income savers will see no change in CGT, with it remaining at 18 per cent.

Jon Sadler, head of retirement at Alico Wealth Management, said that the rise in CGT which was today announced in the Budget will see many higher rate tax payers turning to Isas for a tax-friendly alternative to pensions.

However, MIPs (Maximum Investment Plans) are another viable – if currently underused – option available to those who will be affected by these tax changes, not least because they can be used to defer or reduce higher rates of income tax.

He said, ‘MIPs provide a tax efficient saving structure for higher-rate tax payers, enabling them to regularly save money which will only require them to pay basic rate income tax on the investment gain.

'With the Government continuing to clamp down on tax structures – particularly on those which are based offshore – MIPs offer a tried and tested alternative for those who continue to be affected by changing tax rules.’