Like Christmas, Budget speculation seems to start earlier and earlier every year. And just like Christmas, there’s always a fair chance that an awful lot of it is over-hyped and not as good as you first thought – especially for investors. But there’s still a chance to shelter ourselves from whatever is – or isn’t – in the spring Budget.
This article isn't personal advice. ISA, pension and tax rules can change, and any benefits depend on your circumstances. Tax rates and bands are different for Scottish taxpayers. If you're not sure what's right for you, ask for financial advice.
Use this year’s capital gains tax allowance
There’s a chance the chancellor won’t do anything to protect us from paying more tax on investments and we need to be prepared.
Right now, the capital gains tax (CGT) allowance is set to halve from £6,000 to just £3,000 a year from April 6. This takes us back to levels we haven’t seen since 1981/82 – more than 40 years ago.
So, it’s worth considering your CGT allowance this year, and whether it makes sense to use it to reset some of your gains to zero.
Shelter your investments in an ISA
The cut to CGT in April would be painful enough on its own, but it comes alongside the dividend tax allowance dropping to just £500 from £1,000. It’s now just a tenth of the size it was when it was first introduced in 2016. There’s every chance there won’t be anything in the Budget to reverse this plan.
One of the best ways to shelter investments from both dividend tax and CGT is to hold them in a Stocks and Shares ISA. You can move existing investments into ISAs through share exchange (also known as Bed and ISA), so you can shelter up to £20,000 each tax year. But remember, ISA allowances can change. The value of investments can go down as well as up, so you could get back less than you invest.
Think about your pension
The annual pension allowance was raised this year to £60,000. You get tax relief at your highest marginal rate, so higher earners especially should look to take as much advantage as makes sense for their finances.
There’s no suggestion of plans to change pension tax relief in this Budget, but neither the annual allowances or even the principle of tax relief are set in stone. So it makes sense to take advantage while you can.
Money in a pension can usually only be accessed from age 55 (rising to 57 in 2028).
Don’t forget the rest of your family
The Junior ISA allowance has been £9,000 a year since April 2020 – the highest this allowance has ever been. There’s a real opportunity to put aside a nest egg for children and shelter this money from tax at the same time.
Think about your savings
Frozen thresholds mean more people paying higher rates of tax, at which point their personal savings allowance shrinks massively (from £1,000 for basic-rate taxpayers to £500 for higher-rate taxpayers to £0 for additional-rate taxpayers).
If the Budget doesn’t protect your savings from higher tax rates, you can do it yourself by saving in a Cash ISA. This has the added benefit that if the government were to decide the personal savings allowance is the next candidate for cuts, your cash is protected.