After weeks of speculation, Rachel Reeves announced her tax-heavy Autumn Budget with a range of hikes to plug an oft referred-to £22bn black hole of public money that the Government said was inherited from the previous premiership.
As many predicted after comments from both the Chancellor and Keir Starmer, there were rises in National Insurance contributions (NICs) for employers, CGT and stamp duty on second homes.
But should savers, borrowers and taxpayers be concerned over the “harsh light of fiscal reality” that the Prime Minister warned the public about?
Hargreaves Lansdown’s Sarah Coles, head of personal finance, and Helen Morrissey, head of retirement analysis, have provided seven tips for if you want to protect your finances following the Budget.
On the way to approach your hard-earned cash after the new tax rules, Coles said: “It’s easy to get overwhelmed by the endless post-Budget debate, but we need to cut through the noise and do the right things for our finances right now.
“There are seven steps that could prove particularly valuable.”
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Here are those steps:
1. Save, save, save
Over time, the impact of higher NICs for employers will feed into business finances and is likely to mean smaller pay rises further down the track. The Office for Budget Responsibility (OBR) says earnings expectations further ahead will be lower than expected. It says that, after inflation, wages will grow 2.4% this year and 1.2% in 2025, but then stall in 2026 and 2027.
It means it’s worth setting up a direct debit to go into a savings account on payday each month, so you do the right thing without thinking about it and build an emergency savings safety net. That way, if your Budget gets tighter in the coming months, you’ve prepared some wiggle room.
2. CGT reductions
Despite CGT hikes, there are still ways to reduce a potentially hefty bill. You can use your annual allowance of £3,000 to realise gains gradually over the years. At the same time, you can use the Share Exchange (Bed and ISA) process to move the assets into a stocks and shares ISA, so you don’t have to worry about either dividend tax or CGT on these investments at any point.
You can also offset any losses against your gains, give assets to a spouse or civil partner so they can use their annual allowance too, or defer income to next year so any CGT you do pay is at a lower rate. You can hold assets for life, and the tax will reset to zero on death.
3. Get remortgage ready
If you have a remortgage looming, you’ll already be braced for a hike in your monthly payments. The average interest rate 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 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 can go elsewhere for a better deal, but if they rise, you will have secured a cheaper mortgage.
4. Higher inflation plan
As the cost-of-living crisis has eased, higher earners in particular may have been able to relax their household budgets and free up more cash for nice-to-haves.
The Budget isn’t going to usher in dramatic inflation overnight, but it is expected to rise to 2.6% in 2025 – partly because of energy bills and also partly because of higher wages and higher employer costs. It means it’s worth drawing up a budget in advance so that you’re not caught out by price rises this time. You could even implement it early, and build up a cash cushion before it hits.
The positive news is that inflation is still expected to drop back to 2% by the end of the forecast, so careful budgeting should help you keep on top of your spending in a way that was nigh-on impossible for so many people when inflation was in double digits.
5. Protection against inheritance tax
Fears over the inheritance treatment of pensions came to fruition in the Budget, so that money left in a defined contribution pension after your death will be brought into your estate for inheritance tax purposes. It’s expected to cost people an incredible £1.46bn in 2029/30, and the Government estimates it’ll 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 give up to £3,000 away each year, which will fall within your annual gift allowance. There’s a separate rule that means you can give away surplus income inheritance free too. You need to pay it from your regular monthly income and have to be able to afford the payments after meeting your usual living costs.
If you give them 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. It also gives you more control over how the money is given. You could, for example, put it into a stocks and shares Junior ISA (JISA) for a child under 18, so you know the money will be invested carefully and tied up until they’re an adult.
6. Pension income considerations
There could be more people looking to spend down their pensions as retirement income rather than leave them untouched, a move that could keep the rest of someone’s estate below the inheritance tax threshold.
You might choose to give some of this money away to your family to help them with life’s milestones. There may also be an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the inheritance tax threshold.
7. Tax-free cash warning
If you have only recently opened a drawdown account and are able to reverse your decision, the money can continue to grow tax-free within the pension, as you’d originally planned, without missing a beat.
However, if it has already left, there’s the potential to breach recycling rules aimed at preventing people from exploiting the system for extra tax relief and be clobbered with a fine. If you’re not sure where you stand, this could be one of the times in life when financial advice can be most rewarding.
