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Autumn Budget – 5 key steps to protect your finances after the Budget

From CGT hikes to IHT tweaks, Rachel Reeves’ 2024 Autumn Budget had some surprising changes. Here are 5 post-Budget steps to help protect your finances.
Man and woman paying bills from home

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

It’s easy to get overwhelmed by what to do following the 2024 Autumn Budget, but at times like this it’s important to cut through the noise, and do the right things for our finances now.

Here are five steps that could prove particularly valuable.

This article isn’t personal advice. Unlike cash, investments can fall as well as rise in value, so you could get back less than you invest.

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 advice.

1

Manage your capital gains tax bill

Capital gains tax (CGT) was hiked in the Autumn Budget, taking the rate from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers.

It means any investors with assets outside pensions and ISAs need to consider their CGT bill carefully.

Fortunately, there are still ways to reduce how much CGT you pay.

You can use your annual allowance (currently £3,000) to realise gains gradually over the years.

Another way to deal with a potentially higher CGT bill is to use any losses.

When you complete your tax return, you can add details of the losses you’ve made, which will be offset against the gains when you’re calculating how much CGT you owe.

If you make more losses than gains, you should still make a claim for the extra losses, and if you still can, carry them forward into next tax year.

If you’re married or in a civil partnership, you can also transfer the ownership of some investments to your spouse or civil partner.

There’s no CGT to pay on the transfer. When they sell up, there might be tax to pay, but they have a CGT allowance of their own to take advantage of.

To help save on CGT in the future, you could consider moving any investments outside of a tax-efficient account into a Stocks and Shares ISA, if you have the available ISA allowance, using the Share Exchange (Bed & ISA) process.

Before using Share Exchange take any charges for the deals and the new account charges into consideration.

How to do Share Exchange

If you have shares in an HL Fund and Share account, you can use the Share Exchange (Bed & ISA) process to sell them outside an ISA, move the cash into the ISA wrapper and buy back the same shares again, all in one instruction. You have to stick to your overall £20,000 ISA allowance though.

But when your investments are in an ISA, you won’t have to worry about UK dividend tax or CGT.

Also, don’t forget about your £3,000 CGT allowance when you’re selling investments to move into an ISA.

If you’re earlier in the process of building your assets, consider Stocks and Shares ISAs and pensions, like the Self-Invested Personal Pension (SIPP).

Adding money to your pension effectively can help extend your basic-rate tax band. Plus, you get tax relief from the government on what you pay in. How much you can pay in and the tax relief you get depends on your circumstances. Remember, you can't usually access money in a pension until 55 (57 from 2028).

Using tax-efficient accounts like these also mean your investments can grow without having to worry about CGT and dividend tax.

2

Plan for a remortgage

The Office for Budget Responsibility (OBR) has predicted that the Bank of England base interest rate will drop from 5% to around 3.5% in the final year of its forecast (2030). However, this isn’t quite the fall it expected back in March – when it expected rates to hit 3%.

This doesn’t necessarily mean fixed mortgage rates will rise from here though. That’s because the OBR says the market had already reached a similar conclusion, so it’s largely priced in.

If you have a remortgage looming, you’ll likely already be braced for a hike in your monthly payments.

The average interest rates on all outstanding mortgages right now – including rates that have been fixed for years – is 3.7%. By 2027, this is expected to rise to 4.5%.

Around two thirds of fixed-rate mortgage holders have already had to remortgage since rates started rising, but it still leaves around a third to come up for a remortgage between now and 2026.

If you’re in this position, you’ll need to plan for higher payments.

Given how rates have fluctuated with expectations in recent months, it’s also worth hedging your bets.

You can lock in a rate up to six months before your mortgage expires. If rates drop between now and then you might be able to go elsewhere for a better deal, but if they rise, you’ll have secured a cheaper mortgage.

3

Gifting to protect against inheritance tax (IHT)

Fears over the inheritance treatment of pensions came to fruition in the Budget. The chancellor announced plans to bring inherited pensions into the IHT regime from April 2027. This would mean money left in a defined contribution pension after your death will be brought into your estate for IHT purposes.

It’s expected to cost people an incredible £1.5bn in 2029/30. The government estimates it will affect 8% of estates, so it’s worth planning for.

It might encourage people to consider giving gifts during their lifetime to lower their overall tax liability.

Sensible gifts can help support younger family members at a time when you’re still around to see your family enjoy the money.

You can normally give away up to £3,000 per tax year inheritance tax free. This is known as the annual exemption. You can carry any unused annual exemption over to the next tax year. But if you don't use it in that year, it’s lost.

You can also make 'gifts out of income' free from inheritance tax.

Regular payments made out of excess income (which don't affect your standard of living) are normally exempt from IHT.

This can be a useful exemption for those wanting to contribute to a child’s investments through regular savings.

It’s important to keep records. If you decide to make regular gifts out of income as part of your normal spending, you should keep a record of your after-tax income. This will demonstrate the gifts you've made are regular and you have enough income to cover them and your usual day-to-day costs, without having to draw on your capital.

It’s also worth exploring if the small gifts exemption could help you – it’s available on top of the annual exemption.

If you give loved ones a lump sum of more than the annual gifting limits, it becomes what’s known as a ‘potentially exempt transfer’, which falls out of your estate after seven years have passed.

If you pass away within this seven-year period, the gift becomes chargeable and would then increase the overall tax bill. Your executors can claim taper relief which reduces how much tax there is to pay on the excess you’ve gifted over your available nil rate band.

This relief is available between three and seven years after the gift is made. The longer the period between the transfer and your passing, the greater the taper relief and therefore the lower the tax.

Gifting also gives you more control over how the money is given.

You could, for example, put it into an HL Junior ISA for a child under 18. That way you know the money will be tied up until they’re an adult.

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4

Consider how you take a pension income

Plans to include inherited pensions for IHT purposes from April 2027 would see many more estates being dragged into paying IHT because defined contribution pensions will be counted as part of estates.

It will mean people who were planning to leave money in their pension to give tax-efficiently to family after their death will need to revisit their finances.

The likelihood is we’ll see people looking to spend down their pensions as retirement income, rather than leave them untouched. This is a move which could keep the rest of someone’s estate below the IHT threshold.

They might choose to give some of this money away to their family during their lifetime to help them with life’s milestones.

We could also see an increased interest in annuities as people look to secure a guaranteed retirement income, while also aiming to keep their estate below the IHT threshold.

The government’s free Pension Wise service can help if you’re over 50 and need guidance. Or we can offer you personalised financial advice if you need it.

5

Think carefully about tax-free cash

Anyone who took their tax-free cash from their pension, like a Self-Invested Personal Pension (SIPP) ahead of the Budget might be thinking about putting at least some of it back.

However, you need to be careful.

Those who have only recently opened a drawdown account could be able to reverse their decision, and the money can continue to grow tax free within the pension.

However, if it’s already left your pension, you could potentially breach recycling rules, aimed at preventing people exploiting the system for extra tax relief, and be clobbered with a hefty tax charge

If you’re not sure where you stand, it could be worth thinking about financial advice.

Get peace of mind with financial advice

Our advisers can adjust your financial plan post-Budget. Understand how inheritance tax on pensions and rising capital gains tax could impact you.

Latest from UK Autumn Budget 2024
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Written by
Sarah Coles
Sarah Coles
Head of Personal Finance

Sarah provides insight and analysis to the media on topics such as savings and financial planning, and co-presents HL's ‘Switch Your Money On' podcast.

Helen-Morrissey
Helen Morrissey
Head of Retirement Analysis

Helen raises awareness of key retirement issues to help people build their resilience as they move towards their later life.

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Article history
Published: 1st November 2024