Tax hike fears are mounting for households throughout the UK, with one specialist offering a checklist to safeguard finances ahead of the upcoming budget just a few weeks away.
The nation is on tenterhooks as Chancellor Rachel Reeves gears up to deliver her inaugural autumn statement on October 30th. In the wake of her contentious Winter Fuel Payment revision, dread is spreading amongst many households.
The government swore it would keep its hands off income tax, National Insurance, VAT, and the headline rate of corporation tax, vowing not to “raise taxes on working people”.
Still, an expert has boldly challenged this stance, pointing out that the pledge was a carefully worded promise that cleverly leaves other avenues open for the Chancellor to trim expenses and increase public levies.
Evelyn Partners’ Managing Director Jason Hollands has interpreted Labour leader Sir Keir Starmer’s grim talk of “pain” and “difficult choices to come” as an unspoken admission that some form of tax hike is on the horizon.
The finance expert has issued a warning to those with “even a modest amount of wealth”, cautioning them that they could be in the crosshairs for potential tax hikes. While advising against “any drastic action”, he highlighted some savvy moves Brits could make before the Budget to protect their pockets from the rumoured tax clampdowns.
However, he added: “Not all of the following will apply to everyone or make sense in every individual circumstance – but these are some ideas to consider for people looking to batten down the hatches.”
Protect savings with allowances
In the face of speculation that savings and investments might be hit by income tax and capital gains tax adjustments, Jason is advising folks to max out their tax allowances: “It makes sense individually to consider using ISA and other tax allowances and exemptions to mitigate against unnecessary tax bills.”
He’s also urging married couples and civil partners to combine their financial forces by making the most of both sets of allowances when it comes to capital gains, ISAs, and personal savings a move that could mean transferring assets between each other, typically without triggering tax penalties.
Pension contributions
The Chancellor is rumoured to be eyeing pension tax relief, which could potentially impact the tax-free aspect of pension contributions. To counter this, experts suggest that higher and additional rate taxpayers, who are likely to be hit hardest by this change, could consider “considering injecting a lump sum into their pension pot” or increasing their pension contributions.
This move could also have other benefits, such as helping to offset the effects of frozen income tax thresholds. Jason added: “Research suggests many workers are not saving enough to fund a decent retirement, then this could be a good time to raise monthly contributions…It is wise to seek out some professional advice to work out how much you could contribute and still benefit from the tax reliefs, as this will depend on your earnings.”
Withdrawing pension
The expert stressed that it’s probably not wise to make any drastic financial decisions based on rumours and predictions ahead of the budget. However, those planning to dip into their pensions soon might be better off if they advance this plan.
He explained: “We wouldn’t recommend hasty steps like accessing pension funds on the basis of speculation about what might be in the Budget.
“But if you were planning to do this shortly anyway, and have a clear intended use for it – such as mortgage reduction, paying off other debts or helping out family with expenses like school fees or university costs – then bringing the action forward might not be the worst idea. What isn’t desirable is taking the 25% tax-free cash in a bit of a panic and then holding it in a cash savings account where it will be liable to tax, rather than continuing to accumulate tax-efficiently within a pension.”
