With Rachel Reeves’ Autumn Statement now less than a month away, and a pre-budget speech imminent, rumours continue to swirl about how the decisions she makes will affect your finances.
With Reeves herself acknowledging that she will have to raise taxes to fill a fiscal black hole, experts and several would-be experts are full of suggestions on the changes you absolutely MUST make now to ensure your money is protected from the Chancellor’s clutches.
The truth is, though, that the most important thing is to keep calm. Nothing is yet certain about Reeves’ Budget, and savers and investors have made decisions based on rumours before only to regret them when expected changes did not come to pass.
However, that doesn’t mean doing nothing is the best policy for your personal finances. It’s important to weigh up how possible changes will impact you, and whether there are ‘pain free’ decisions you could make now that could help you later.
Everyone’s situation is different, and some decisions will have bigger consequences than others. Here are some of the actions you might consider.
The no brainers
Some decisions will have no poor consequences if expected rumours do not turn into reality. If you’re in the position to do these things, they will always improve your financial position.
Use your Isa allowance
Everyone has an annual £20,000 allowance that mean their money can grow tax free. The Isa allowance is flexible – you can save in cash or shares, take the money out when you want and even take money out and put it back in the same tax year in some products.
Given the Isa allowance could be cut, while the taxes you could avoid by having money in there such as capital gains tax, dividend tax and income tax could rise, there’s nothing to lose by putting your money into an Isa now before any rumoured changes are pushed through.
Make planned pension contributions
If you were going to make pension contributions – whether to your private pension or an employer pension – this financial year anyway, there is nothing to lose in pulling them forward to before the Chancellor speaks.
You can put up to £60,000 into your pension every year, and if you have unused pension allowances from previous years you can carry these forward too, as long as it doesn’t add up to more than your income this year.
Make affordable gifts to family with Inheritance Tax in mind
The Chancellor may crack down further on ways to reduce your inheritance tax burden, and this includes the annual gifting allowances, which mean you can give money to family every year without it being assessed for IHT.
These include a £3,000 annual exemption, which can be rolled over once to the following year to make it £6,000 if unused.
Giving money or assets away up to this value takes them out of consideration for IHT, so if you’ve money you can afford to give away do it now, as Reeves may cut this.
David Lunn, Partner at IWM Solicitors, points out that many people ‘fail to make maximum use’ of this exemption, adding that you can also make wedding gifts of £5,000 per child, £2,000 per grandchild and £1,000 for anyone else.
‘You are also allowed to make an unlimited number of small gifts of up to £250 per person annually, provided you have not used one of your other gift allowances for that person,’ he adds.
Plan as a couple
If you’re married or have a civil partner, now is the time to take advantage of the fact that you both have Isa allowances, so that you fill up both.
If one of you pays a lower tax rate than the other, you can also transfer any assets you have that produce an income to the partner who pays the lower tax rate, so that whatever happens with the Budget, any extra tax is at a lower rate.
Make £3,000 of gains
Everyone has a Capital Gains Tax allowance of £3,000, which means you can make £3,000 of profit on assets you sell, such as shares, valuable items like furniture or antiques or property, without paying tax.
If you are planning to sell any of these items, do it now in case the allowance is cut.
If you have shares outside an Isa and Isa allowance to spare, you could sell them, realise £3,000 of gains tax free and then buy the same shares back in the Isa so you don’t have to pay tax on gains or dividends in future. This is a process known as ‘bed and ISA’.
Give these some thought
There other possibilities too, but these do require some careful thinking through – often with your financial adviser – before acting on them as you need to be sure you’re not tying yourself in financial knots over ‘maybes’.
Top up your Jisas
This is not a difficult thing to do. Children under 18 have a £9,000 Junior Isa allowance, and if you are saving for them, you can shelter more money from the taxman by making full use of this.
But remember that the moment they turn 18 this money will belong to them, so make sure you are comfortable with them using what could by then be quite a considerable amount of money as they wish.
You could put money instead into a junior pension. Even though most children pay no tax they can still benefit from tax relief on pensions, which is essentially free money from the government, and with rumours over tax relief on pensions being capped, this may be more important than ever.
For a child’s pension the maximum annual contribution is £2,880 plus another 20 per cent tax relief (up to £720).
But as Rowan Harding, from financial planner Path, points out, children’s pensions are a very restrictive option, however, so you must be aware of the limits.
‘A child can have control of their own pension at 18, but unlike a Junior Isa, the money in an SIPP can’t be accessed until they are 55 (rising to 57 in 2028),’ he says.
Sell up and take the CGT hit now
Many believe that the Chancellor could increase the rate of Capital Gains Tax If you think the rate is going to rise, you could sell assets now so that you pay the tax at the current rate.
Be wary about this move and make sure you are not making a decision driven entirely on tax predictions, especially as there may be other compelling reasons to do the opposite and hang on to them.
