We’ve all heard the rumours about the upcoming Budget.
Chancellor Rachel Reeves is gearing up to deliver her first Budget on 30th October, and with a black hole in public finances to plug, tax changes may be on the agenda.
There is some good news. Labour has promised not to raise income tax, National Insurance or VAT. The bad news is that this means tax rises are likely elsewhere.
There are a range of possible targets, from capital gains tax to inheritance tax – or even your pension pot.
We won’t know the specifics until Budget Day arrives, but at Continuum we are looking at some strategies you can follow now to keep your tax liability under control.
1. Top up your pension
It is rarely a bad idea to top up your pension. Retirement costs have soared in recent years many of us are not saving enough. Pensions are also an incredibly tax-efficient way to save for the future. Every pound you pay into your pension is increased by pension tax relief. HMRC effectively refunds you the income tax you originally paid on the money when you earned it.
The refund is paid at your marginal rate (20%, 40% or 45%). All savers receive the 20% refund automatically, but higher and additional-rate taxpayers need to claim the remainder by filing a tax return.
The worry is that the budget might reduce these generous refunds.
One potential way around this could be to contribute as much as you can into your pension before the end of the month.
Currently you can contribute the equivalent of your total income, up to £60,000 to your pension each year in total. This includes the contributions from HMRC and your employer, as well as any money you pay in yourself.
2. Use your ISA allowance
You can pay up to £20,000 into an Individual Savings Account or ISA each year. This is a tax-efficient wrapper where you can hold cash or investments like stocks and shares. Any income or capital gains you earn is shielded from the taxman.
Commentators have warned that capital gains tax (CGT) could be a target in the Budget. CGT is charged on profits from investments, but not when those investments are held in a tax-efficient wrapper like an ISA or pension. Making the most of an ISA could potentially have a positive impact on your tax bill.
Many people leave their ISA contribution to the final months of the tax year, but if you have the cash available to bring this forward to before the Budget, it might be a sound tactic.
3. Look at Bed and ISA
Bed and ISA can let you transfer existing assets into an ISA wrapper where capital growth or income will be sheltered from the taxman.
It means selling your existing assets and buying them back within your ISA. Crucially, by selling existing assets and realising gains of up to £3,000, you can stay within your annual CGT allowance. A provider can manage this on your behalf.
4. Set up a Junior ISA
Children have their own £9,000 ISA allowance each year, so if you have already maximised your own £20,000 ISA allowance, you could consider contributing to a junior ISA on behalf of your child. A junior ISA (there are two types- Cash Junior ISA or Stocks and Shares Junior ISA) – and the money - legally belongs to the child, but you might feel that this is much better than it belonging to the taxman.
You won’t be able to access the money. Only the child will be able to access the funds once they turn 18.
5. Cut your inheritance tax bill
The government has been receiving increasing sums of inheritance tax (IHT) in recent years.
The rate of inheritance tax is unlikely to go up in the upcoming Budget, being already painfully high at 40%. However, Labour could consider charging capital gains tax on inherited assets, resulting in a ‘double death tax’ of more than 50%. Another option that may be used would be to reduce the current nil-rate band and the residential nil-rate band.
Fortunately, there are some strategies you can may be able to use to pass on more of your estate tax free, including giving it away while you are still very much alive.
6. Use your CGT allowance
With Capital Gains Tax - CGT - tax is charged when you sell an asset, such as an investment. Increase seems likely in the budget.
Everyone currently has a £3,000 tax-free allowance every year, and as this could possibly be decreased in the Budget, you need to plan how to use yours.
So, if you are married or have a civil partner, you could transfer some assets into your spouse’s name, letting you benefit from their allowance as well as your own.
Remember that you can also offset any losses and deduct any unused losses from previous tax years to cut your CGT bill.
7. Get some expert help
It is easy to panic with the threat of tax hikes on the horizon, but fortunately, it is easy to get expert help too. At Continuum we can help you build a strategy that aims to keep your tax under control, whatever the Budget might hold.
Call us on 0345 643 0770 or email us at info@mycontinuum.co.uk to discover how our award-winning services can support your financial future.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice, or a recommendation to a particular investment/retirement or taxation strategy 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 will writing.
Investors in ISA’s do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances
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.
