Autumn Budget – 5 more likely tax changes coming next week

The Autumn Budget is on Wednesday, 30 October – now less than one week away.

Potential tax hike rumours have been rampant, but the mists are beginning to clear, and the more likely changes are emerging.

Unfortunately, this involves some potential horrible potential tax hikes.

This isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on your circumstances. Scottish tax rates and bands are also different.

Remember, unlike the security offered by cash all investments and any income they produce rise and fall in value, so you could get back less than you invest. If you’re not sure what’s right for you, ask for financial advice or seek tax advice from a specialist or accountant. You can also usually only withdraw from your pension from 55 (57 from 2028).

Rachel Reeves looks set to follow in the stealthy footsteps of the previous government, by extending the freeze on tax thresholds.

It could mean we pay £7bn more a year in income tax. Every pay rise pushes more people into paying more tax – and means more will fall into higher tax bands.

If you have savings, it’s worth considering a Cash ISA, where you pay no UK income tax on interest.

You should also consider adding money to a pension, like a Self-Invested Personal Pension (SIPP).

The annual pension allowance is now £60,000 for most people. The fact you get tax relief at your highest marginal rate means higher earners in particular should look to take as much advantage as makes sense for their finances.

We’ve seen suggestions capital gains tax (CGT) could rise to match income tax, or that it might rise to 24%. This is considered a ‘sweet spot’ between being high enough to raise more tax, without being so high it encourages people to find ways around it.

Whatever the hike, it’ll be hard to stomach for investors.

There’s a real risk it could put new investors off altogether. It might also stop people from selling for tax reasons, which could force them into decisions that ultimately leave them worse off.

If you’re worried about CGT, it could be worth thinking about selling assets to use your current annual £3,000 allowance as you go along.

At the same time, you can use the Share Exchange (Bed & ISA) process to move assets from an HL Fund and Share account into an HL Stocks and Shares ISA – which shelters them from CGT in future too.

Just don’t forget about your £3,000 CGT allowance which may be used when you’re selling investments to move into an ISA. And remember, you have to stick to your overall £20,000 ISA allowance.

You should also look at losses. You can offset losses from the same year against your gains, and currently carry them forward for one year.

If you’re earlier in the process of building your assets, consider Stocks and Shares ISAs, which mean investments can grow without having to worry about CGT and dividend tax.

The government could tweak the rules around potentially exempt transfers. This rule means that gifts of any size can be given to anyone, and as long as you live for another seven years, it’s out of your estate for inheritance tax (IHT) purposes.

Chancellor Rachel Reeves could extend this period to 10 years.

This risks increasing the number of people who die before the money is considered to have been entirely given away, and mean more people receiving gifts, and then being stung with a tax bill years later.

Anyone planning to give gifts in order to cut inheritance tax on their estate should consider it sooner rather than later to get the clock ticking.

It doesn’t mean anyone should give away money they can’t afford too early in life. However, it highlights the benefits of planning early.

If you have children in your life who are under 18, you could consider paying into a Junior ISA for them.

This is counted as being given away for IHT purposes. But it will be tied up until they reach 18 and are ready to make adult decisions about their nest egg.

It’s looking increasingly likely that the government revisits business property and agriculture relief – which together saved people £4.4bn in 2021/22 – up 5% in a year.

The government could look to prevent the rules being used as tax planning tools, which could affect rules around Alternative Investment Market (AIM) investments.

AIM shares will normally qualify for business relief, which means they can be passed down without having to worry about paying IHT on them. However, this is provided they’re held for a minimum of two years, they’re still held at death, and the shares still qualify when the holder passes away. If the shares haven’t been held for two years, a surviving spouse or civil partner can inherit the portfolio without restarting the minimum two-year holding period.

AIM shares could be excluded from the exemption, the rate of relief could be cut, or the holding period could be increased.

It always pays to revisit your investments to make sure they make sense as part of your overall portfolio. You also need to consider the impact if other investors are put off the AIM market because of a change in the rules.

However, if you’ve invested in growing companies for the long term, because you fundamentally believe in them, then the tax treatment is just one of a number of considerations.

Changing the tax treatment of pensions on death could also prove a tempting target for government.

At the moment, pensions are passed on tax free if you die under the age of 75 – or taxed at the beneficiaries’ marginal rate if you die over 75 – but in most cases pensions don’t attract IHT.

If this rule was changed, it could prompt a rethink in how people treat their savings in later life, and see a switch from people looking to run down their ISAs during retirement, to their pension – whether that be through gifting to loved ones or increased spending.