Rachel Reeves is after your pension, savings, home and inheritance | Personal Finance | Finance
This is likely to be the cruelest Budget in decades. Rachel Reeves has vowed not to repeat last year’s £40bn budget tax attack – but she will. The Chancellor will pay us at least £30bn more, possibly £50bn more. Every taxpayer is in the line of fire; especially retirees whose income, pensions, savings, homes and inheritances may be under constant attack.
Reeves could even scrap the Labor manifesto pledge and increase income tax by 2p per pound. It could also cut the 25 per cent tax-free sum of pensions, halve your Cash ISA allowance to £10,000, impose two new high-rate council tax bands on properties, impose a “mansion tax” on homes and launch a new inheritance tax raid.
Each of these options is on the table, and Reeves may have a few hidden surprises up his sleeve. Other possibilities include increasing fuel duty or imposing a 20% exit tax on those fleeing the UK. But we don’t know that for now.
There is a risk in acting on speculation, as many people discovered before the last Budget. Some reportedly rushed to get 25 percent of their pension in tax-free cash ahead of the cut, but regretted it when it didn’t happen.
But there are simpler ways to reduce exposure to Labour’s constant tax grab (there will be more). Here are five “no brainer” moves to consider.
1. Use your ISA allowance. Each adult has an annual ISA allowance of £20,000, which allows for tax-free growth. While the Stocks and Shares ISA looks safe for now, Reeves could halve the Cash ISA element to £10,000.
Any changes are likely next April, so it’s worth using as much of this year’s allowance as possible. Families also have a Junior ISA allowance of £9,000 for children under 18 and should top this up if possible.
2. Consider retirement contributions. There are rumors that Reeves may cut the higher rate tax deduction on pension contributions and replace the current rates of 40 percent and 45 percent with a flat rate of 25 percent or 30 percent for everyone. High earners may want to use more of their £60,000 annual allowance just in case.
Remember, pension money is locked in until 55 (it will rise to 57 from 2028). If Reeves cuts the 25 per cent tax-free cash allowance, anyone with a pension over £400,000 could be affected. It’s not easy.
3. Consider giving gifts to your family. Reeves could tighten the operation of annual gift allowances for inheritance tax (IHT).
Today gifts are exempt from IHT after seven years, but he could extend this to 10 or even 12 years. It could also attack the “gift from excess income” clause, or the £3,000 annual exemption as well as smaller allowances of £250 per person. It may be worth giving gifts before you budget, but don’t give away money you might need later.
4. Couples should plan together. Married couples and civil partners can put more money into ISAs or pensions, doubling the allowances. If a person pays a lower rate of tax, the overall bill can be reduced by transferring income-producing assets into his or her name.
Spouses can transfer assets between each other without triggering inheritance or capital gains tax (CGT). This is an advantage that cohabiting couples do not have.
5. Bank capital gains. While the annual CGT exemption was reduced to £3,000 under the Conservatives, Reeves increased rates to 20% and 24% for higher earners. More may come.
Anyone with gains from shares or assets outside the ISA can now benefit from the £3,000 exemption. Couples can double this figure to £6,000 in jointly held assets. Selling stocks or investments you like? You can always buy them back under a tax-free ISA to protect your future gains.
Don’t panic, but don’t waste time either. If you’re unsure, consider seeking independent financial advice.
