Engage pre-budget update…
Following Sir Keir Starmer’s recent speech about the state of the UK government’s finances, there’s been plenty of debate around the inevitable tax rises we’re being prepared for ahead of the Budget on October 30th. Trying to predict these changes and adjusting your finances ahead of time can be risky, and no one really knows for sure what’s coming. At Engage, we don’t have a crystal ball either, but there are some steps we believe are worth considering before the Budget, particularly in areas where tax changes seem more likely.
The rule of “keeping it simple” works well, and we’re focusing on actions that could be brought forward to take advantage of existing allowances or reliefs in case these are reduced or removed late this month. Naturally, the right actions will vary based on your individual circumstances, and we will be in touch with our clients directly, where appropriate, to guide them through this.
Capital Gains Tax (CGT)
Capital Gains Tax is an area that many believe might come under review. Currently, CGT rates are linked to income tax bands but are lower than income tax rates. For basic-rate taxpayers, CGT is currently 10% on most assets and 18% on residential property, while higher and additional-rate taxpayers pay 20% on most assets and 24% on residential property. There’s also a £3,000 annual allowance, meaning you only pay CGT on gains above this amount.
There’s potential for CGT to be aligned with income tax rates or switched to a higher, flat rate.
Actions to consider:
Sell assets that have increased in value to use up your £3,000 annual allowance.
Consider going beyond the annual allowance to lock in the current rates, if it makes sense for your situation.
ISAs
ISAs offer a great way to shield assets from capital gains and income tax. At the moment, individuals can contribute up to £20,000 each tax year to a stocks and shares or cash ISA.
Action to consider:
Max out your £20,000 ISA contribution before the Budget.
Pensions
Pensions come with many tax benefits. Contributions currently qualify for income tax relief, with the potential to “carry forward” unused allowances from the past three years. Pensions also grow tax-free, and when it comes time to withdraw, you can take up to 25% of the fund’s value tax-free (subject to certain limits). Importantly, pensions are usually outside of your estate for inheritance tax purposes.
We believe that taking significant action in anticipation of changes to the above that do not materialise could leave the pension holder in a materially worse position.
Actions to consider:
Make pension contributions before the Budget to benefit from current tax relief rates.
For some, it might be worth using “carry forward” if you have unused allowances.
If you're thinking about taking your tax-free cash (PCLS), consider doing so before the Budget—but be mindful of potential inheritance tax implications, so please get advice on this before making any decisions.
Inheritance Tax (IHT)
Inheritance Tax is a contentious issue that impacts a small percentage of the population (less than 1%). Changes to IHT are often driven by political, rather than financial, motives. While most of our clients’ estates could be subject to IHT, we don’t recommend making major changes just yet, as this area could change in unexpected ways—or not at all.
Action to consider:
If you were planning to make gifts in the near future, you might want to consider doing this sooner rather than later.
Conclusion
As the Budget approaches, there will be a lot of speculation about possible changes, some of which may even be leaked to the media to test the public’s reaction. At Engage, our goal is to help our clients focus on what matters and keep things simple. The best course of action will depend on your individual circumstances.
If you would like to discuss any of the above in more detail, please do get in touch.
The above content is for informational purposes only and is not intended to be personal financial advice.