Brits have been urged to protect their savings after rising fears that Rachel Reeves‘ budget will launch a major tax gouge on the public. The Chancellor warned that Britain’s taxpayers “all have to contribute” and there are rumours that she is considering raising income tax for the first time in 50 years.
Reducing the cash ISA allowance, changing rules around savings in pensions and capping lifetime gifts are also reportedly under consideration. There are a few things you can do to protect your money, but you must consider whether your actions will put your savings under threat if the budget does not turn out the way you think. Craig Rickman at Interactive Investor said: “The key question that anyone would need to ask themselves is: if I make this decision ahead of the Budget and nothing changes on November 26, will it harm my current or future financial security?” There is one option that is almost entirely risk free in this sense, protecting your money on before and after the budget.
Currently you can put up to £20,000 a year into ISAs where returns remain tax free, regardless of whether it’s a cash or stocks and shares account. However, there have been many months of speculation that this allowance will be slashed to aroudn £10,000 or £12,000.
If you haven’t already filled this year’s allowance, it might be a good idea to do so to ringfence as much money in your ISA as possible before regulations change. This will protect you against a potential unnecessary tax bill.
Mr Rickman said: “The benefit of using your cash Isa allowance as early as you can is that the interest that you’re earning is tax-free. Doing it as soon as you can is pretty much always a good idea.”
There are a few other tips and tricks you can employ to protect your savings. One method is known as ‘Bed and ISA’. In this strategy you sell investments held outside and ISA and then buy them back within the ISA wrapper.
This is pertinent because there have been rumoured increases tax rates on investment returns and dividends. However, this protection does come at a cost – you may incur dealing fees, stamp duty charges when buying shares and potential captial gains tax when selling assets.
Last year, Reeves increased the tax from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for those who pay higher-rate tax after the Tories halved the capital gains allowance to £3,000 in April 2024. For those looking to defend against anymore potential changes in this tax, Bed and ISA could be a good method.
Paying more into your pension defends it from potential rising income tax and you can make the most of your pension perks while you’re still around. Contributions currently receive tax relief at your marginal rate.
Reeves is rumoured to be plotting a pension tax raid, potentially impacting tax relief enjoyed by higher earners and salary sacrifice schemes. Currently, there is an annual tax relief on pension savings rate up to £60,000 or 100% of your salary.
One option reportedly discussed at the Treasury would see tax relief on pension contributions reduced for higher- and additional-rate taxpayers. Another option also reportedly talked about might mean the Chancellor could introdude a ‘flat rate’ to equalise tax relief for everyone, effectively increasing taxes for higher earners.
Paying more in before the budget could lock in current pension tax laws for the money in your account. Martin Willis of consultancy Barnett Waddingham said: “Bringing forward planned contributions could lock in current rules around tax relief, contribution limits, or how much you can draw tax-free. But remember, once money is in a pension, it’s locked away until at least age 55 [rising to 57 in 2028], so decisions should always reflect your wider financial situation.”
Married couples are allowed to trade part of their tax free income tax allowance between each other. Everyone has a £12,570 tax free allowance but married couples can transfer £1,260 between each other if one of you earns less than £12,570 and the other earns between £12,571 and £50,270 (the basic tax rate).
If you transfer the maximum from the lower earner to the higher earner there are tax savings to be made.