Chancellor Rachel Reeves seemed determined to make her mark with her first budget on 30th October.
The new Labour government has some ambitious plans which will need funding, as well as a huge black hole of inherited debt that needs to be filled. As taxpayers, we will be paying to fill it.
No one wants to pay more - but even though we canโt evade the new tax rates imposed in the budget, now we know what they are, at Continuum we are looking at some strategies that aim to reduce them.
1. Look at your Employersโ National Insurance
The Chancellor announced a tax raid on businesses by increasing National Insurance contributions for employers.
Currently Employers National Insurance contributions (NICs) start at 13.8% when an employeeโs pay exceeds ยฃ9,100 a year. From April 2025, the rate will increase to 15%, and the salary at which it becomes due will also be reduced to ยฃ5,000 to raise ยฃ25bn for the Government.
If you run a small business, you will pay an extra ยฃ1,226 for every employee on ยฃ60,000.
National insurance explainer (Budget October 2024 update)
Make sure youโre claiming any employment allowance that youโre entitled to. This is set to increase from ยฃ5,000 to ยฃ10,500. You might be able to reduce costs using your employee pension scheme. If employees use salary sacrifice, to put more into their pensions, it could help reduce their take-home pay, their income tax โ and your NI burden.
2. Avoid the capital gains tax rate rise
As expected, capital gains tax will increase for all taxpayers as Ms Reeves launches a raid on investors. Sellers of shares and other valuable assets will be hit by higher rates โ and the rise will be higher for low earners as it is for high earners.
Basic-rate taxpayers will pay 18%, up from 10%, while higher-rate taxpayers will pay 24%, up from 20%. These rates will match the capital gains tax charged on the sale of second homes.
Remember, you can share assets between married partners to double your CGT allowance. Also, capital gains tax is only applied when you sell, so you avoid it by keeping your assets. Max out your pension and ISAs, as assets held in them grow free of capital gains and dividends tax.
3. Check your family wealth plans
Inheritance tax receipts are already at record levels, with the Treasury raking in ยฃ2.2bn in the last three months alone. The Chancellor has not changed the rates, but she has extended the freeze on allowances โ and has removed one of the most important ways of reducing the amount of your wealth that goes to the taxman.
The biggest change is to pensions, which are currently excluded from inheritance tax, but any unused pension funds will be counted as part of your estate from April 2027.
You might want to consider withdrawals from your pension fund, if it is appropriate to your circumstance, as it will no longer shelter what you leave from the taxman. Fortunately, there are many other ways to reduce your inheritance tax burden, but they will need expert support.
4. Should you spend your pension?
The change to inheritance rules may make a huge difference to your pension plans. Now, the choice is to take cash out while you are alive, and pay income tax at your marginal rate โ or leave it in and know your loved ones will pay 40% in death duties once youโre gone. It should be noted, that if you withdraw a large amount from your pension this could push you into a higher tax bracket.
There could still be ways to help make your pension work hard for you โ but you may need to look at some other types of investment if you are keen to avoid too much of your wealth going to the taxman.
5. Move that property purchase forward
Stamp duty will be going up in March 2025 when thresholds will shrink back to ยฃ125,000 and ยฃ300,000. The charge will leave the average homebuyer with an extra ยฃ2,500 to pay, while first-time buyers could pay an extra ยฃ11,250.
It may be worth bringing your purchase plans forward to take advantage of the concessions while they last โ but if you are buying a second home or buy-to-let property, it is already too late. The 3% stamp duty surcharge on these has already risen to 5%. You may be able to reduce the cost by setting up a business to buy investment property.
6. Use your ISA allowance
The Chancellor left ISAs untouched โ which means you can still pay up to ยฃ20,000 in an Individual Savings Account(ISA) each year and ensure that income or capital gains you earn from them is shielded from the taxman.
Increases in capital gains tax make using your ISA to the full even more important if you want to keep you tax bill down.
7. Get some expert help
It is easy to feel overwhelmed when tax is increased, but fortunately, it is easy to get expert help too. At Continuum we can help you build a strategy to help keep your tax under control, even under the Chancellors new tax plans.
Simply call us for the help you need.
Autumn Budget 2024 (HTML) - GOV.UK
UK households will wake up to ยฃ11,250 bill after stamp duty rule change
Autumn Budget 2024: when is it and what will it contain? - Which? News
Record ยฃ2.2bn Inheritance Tax Collection Sparks Potential Reforms - Financial News
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to any particular financial strategy and you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation and trust advice or estate planning and some aspects of Buy to Let mortgages
Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
