Last week’s Budget was a right old horror show: a £30billion tax attack on the hard working and the thrifty.
But don’t despair. Having absorbed the detail of Rachel Reeves’ painful Budget, what is clear is that her assault on our wealth CAN be parried, provided you box clever.
It will require you to be organised and set up a financial checklist – a diary even – detailing what is coming your way in extra taxes. You can then prepare for them in ADVANCE – and mitigate their impact.
Nerdy? Maybe, but please join the club.
I’ve spoken to many readers over the years who have improved their finances by keeping meticulous records and diarising when key personal finance issues must be tackled.
For example, noting down when a special or fixed rate savings deal is coming to an end so that they can move their money to a competitive account, rather than allowing it to drift into the provider’s lowest interest rate product.
Why a checklist makes sense is because the Chancellor is not clobbering us in one fell swoop. Instead, she will ramp up the pain in stages: a financial version of Chinese water torture.
Some measures will be delayed for up to four tax years.
Rachel Reeves revealed a £30billion tax hike on workers during her Budget last week
She’s chosen this approach not because she’s embarrassed over hitting the thrifty with a slew of taxes to fund record amounts of welfare spending. No chance. It’s a result of some of the tax changes requiring the updating of computer systems used by financial companies and employers before they can be introduced.
What this means is that you have time to work out how to counter the new taxes and restrictions on savings. It may mean a reorganisation of your finances. It should also prompt you to put more money into tax-friendly savings and investment plans.
It might even persuade you to sit down with a wealth expert who will ensure your finances are as watertight as they can be.
Here’s a basic checklist for you to adapt to suit your financial situation. If you want to mitigate the impact of the ‘nasties’, you MUST act ahead of the tax year in question – and the earlier the better.
TAX YEAR STARTING:
APRIL 6, 2026
Nasties:
Tax on dividends is increasing by two percentage points for basic and higher rate taxpayers, taking rates to 10.75 and 35.75 per cent. The additional rate tax stays at 39.35 per cent.
Tax relief on investments into venture capital trusts (VCTs) is being cut from 30 to 20 per cent (the relief is only available on new share issues).
How to mitigate:
Check whether the share dividend income from your investment portfolio is likely to exceed the annual (tax-free) allowance of £500. If the answer is ‘no’, fine.
But if ‘yes’, look to transfer high divi paying shares into your pension or stocks and shares Isa, shielding the income from tax.
Married couples (and those in civil partnerships) have individual dividend allowances. Structure your investments so both are used.
If you are happy to take on board bags of investment risk, and have considerable wealth behind you, consider a VCT. Tax-wise, it’s a dream. A £50,000 investment will trigger a tax rebate of £15,000.
But from an investment risk perspective, it’s high octane, although you will be investing in UK small businesses. Read VCT information supplied by the likes of Hargreaves Lansdown, Interactive Investor and Wealth Club.
APRIL 6, 2027
Nasties:
Tax on savings interest rises by two percentage points, meaning new rates for basic, higher and additional rate taxpayers of 22, 42 and 47 per cent.
Same tax rates will apply to landlord rental income.
Annual cash Isa allowance for the under-65s is cut from £20,000 to £12,000, but remains at £20,000 for the those aged 65 and over.
Unused pension funds fall into the inheritance tax (IHT) regime.
How to mitigate:
Ensure as much of your savings interest as possible is shielded from tax using cash Isas (priority) and the annual personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate).
If you are married, arrange your savings so that you both use your individual cash Isa and personal savings allowance.
So, a maximum of £40,000 can be put in cash Isas if you are both over 65 – £24,000 if you are younger. On top, potentially £2,000 of annual savings interest can be shielded through use of both personal savings allowances.
Review cash Isas from past years and maximise the interest you earn from them. Do the same with all other savings accounts.
If you’re aged 75 or over and have a private pension fund, it is now included in your assets liable for IHT in the event of your death.
So assess whether IHT (plus income tax on the pension) could become an issue for beneficiaries further down the line.
If the answer is ‘yes’ (couples can leave behind a total estate of £1 million without their beneficiaries paying 40 per cent IHT), mitigate it while alive. Maximise annual gift allowances and make gifts from surplus income. Also make potentially exempt transfers which fall outside of the IHT net after seven years.
If you feel IHT could be a big issue, seek out a financial expert skilled in estate planning. They know all the legitimate ways to reduce a future bill.
If you’re an amateur landlord, assess the impact of the rental income tax hike on the profit you make – and consider whether a rental hike is necessary.
APRIL 6, 2028
Nasties:
A new council tax surcharge on £2 million-plus properties kicks in, resulting in an extra annual bill starting at £2,500 and rising to £7,500 on £5 million-plus homes.
How to mitigate:
If paying the bill could be a problem (you may be asset rich, cash poor), consider downsizing – escaping the tax and releasing some equity.
But you may also be able to stay where you are and defer paying the surcharge until the property is sold (keep an eye out for details).
APRIL 6, 2029
Nasties:
A stealth tax comes in on salary sacrifice pension plans
provided by employers. It will impose an annual cap of £2,000 on the contributions that can be made, enabling both workers and companies to save on National Insurance bills.
How to mitigate
If you’re in such a works pension, keep squirrelling money away into it: don’t stop payments as you’ll regret it in later life.
Consider increasing your ‘sacrifice’ between now and April 2029, boosting your pension contributions. Speak to your employer or pension administrator on this.
If you’re in a different type of pension, keep saving. Labour may attack pensions again.
Finally…
To hear more about the Budget and what it means for your money, please sign up to This is Money’s webinar: ‘How to manage your wealth in uncertain times.’
It will be hosted by Simon Lambert, publisher of This Is Money, with expert advice from Michelle Holgate, director and wealth manager at RBC Wealth Management, and yours truly.
We will be discussing the headline announcements from the Chancellor’s speech, the devil hidden in the Budget detail and what people can do to protect wealth.
It starts at midday on Wednesday December 3 but you can watch it later at a time to suit. Sign up here.
