Is the UK about to raise taxes? Here are some things for you to consider before the Budget
- TBA
- Oct 18, 2024
- 3 min read
Updated: Feb 25
At the end of this month, the Labour government will announce its first autumn budget after taking office.
Recently, the government has emphasised that they are facing a £22 billion spending gap and are preparing to make ‘tough decisions’. In this context, is the UK about to raise taxes? This has become a focal point of public attention.
As speculation grows, many media outlets seem to have insider information suggesting that the government may focus on adjusting capital gains tax, increasing pension taxes, and inheritance tax.
How can we save as much as possible in this time? We believe you can take advantage of current tax rules before the next budget.
Our top tips to get ahead of the Budget
1.Contribute to Pensions
There are rumours that the new Chancellor of the Exchequer may adjust annual pension allowances and tax relief.
Currently, taxpayers can benefit from pension tax relief. As a higher or additional rate taxpayer, you can gain more benefits—40% to 45% pension tax relief. For instance, a higher rate taxpayer contributing £60,000 would only need to spend £36,000, while an additional rate taxpayer would only need to spend £33,000.
If you haven’t contributed much to your pension in recent years, you can carry forward unused allowances from the last three years, potentially allowing contributions to rise to £200,000 this tax year (provided your income reaches this amount).
2.Maximize Your ISA Allowance
In addition to potential pension adjustments, it’s rumoured the government might increase capital gains tax. If so, you may want to maximise your ISA contributions before the budget is announced.
Whether when selling and cashing out or rebalancing your portfolio, investing through an ISA allows you to avoid capital gains tax altogether. Reports indicate a 31% increase in the number of people utilizing the full £20,000 ISA allowance compared to last year.
3.Purchase a Junior ISA for Your Children
Many have opened Junior ISAs for their children this tax year, with a 40% increase in account numbers, as parents want to ensure allowances are secured while protecting investments from tax.
Junior ISAs provide triple tax benefits, allowing contributions of £9,000 per tax year, which can grow tax-free. This might not seem significant for younger children, but it can have a massive impact as they grow.
For those worried about inheritance tax (IHT) increases, Junior ISAs can help pass on assets without significant tax liabilities.
4.Use Bed and ISA for Existing Investments
If you hold assets outside of your ISA or pension, you can utilize the Bed & ISA process to sell those assets within your £3,000 CGT allowance and transfer them into an ISA.
This method is smart for those whose portfolios exceed their ISA limits, as it allows for the immediate sale and repurchase of assets without worrying about dividend or capital gains taxes.
5.Utilise Your Capital Gains Tax Allowance
Capital gains tax is charged on profits from selling assets (including property or investments), and everyone has a £3,000 allowance each tax year. You can choose when to realize gains, potentially taking advantage of this allowance within the current tax year.
Spreading out gains over several years can lower your tax bill. To reset your capital gains tax, you can sell and repurchase within an ISA, exit the market for 30 days, or consider new investments.
6.Transfer Assets to Your Spouse
If you are married or in a civil partnership, you can transfer ownership of some assets to your spouse or partner without incurring capital gains tax.
This won’t reset the tax bill to zero, but they can utilise their own allowances to reduce tax liabilities. If they are on a lower income tax rate, they may pay a lower rate on capital gains tax.
7.Use Your Gift Allowance
You can donate up to £3,000 each year, which will be deducted from your estate immediately. This not only provides an opportunity to save on inheritance tax but allows your family to benefit from your generosity while ensuring the funds are used wisely.
A word from TB Accountants
We want to remind you that the above tips are merely for reference and may not suit everyone. It’s crucial to avoid rushing into decisions; you should consider your personal circumstances carefully.
Even if the UK government raises taxes, don’t let these policies pressure you into making decisions you wouldn’t normally make.
Remember, the value of all investments can go up or down, and your returns may be less than your investment. If you’re seeking the best strategy for your situation or are uncertain which approach is right for you, you should consult a financial expert.