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If all the budget speculation is making you feel anxious, unfortunately we’re only halfway through the enormous notice period Rachel Reeves gave us, so there’s plenty more to come. To protect yourself from getting overwhelmed, it’s worth focusing on five of the most common rumours so far, and how you can protect yourself from what could be coming.
1. Capital gains tax could rise
There are two key issues here — there’s the chance the overall rate will rise, possibly to match income tax. There’s also the potential that the rules might change around what happens to capital gains tax when you die.
If the rate rises, it’ll affect people who hold investments outside ISAs and pensions — including investment property. If it matches income tax, it’s means doubling the tax rate for most people, which is a hefty hike. If capital gains rules change, so they no longer reset to zero when you die (so people you pass investment assets to would have to pay capital gains tax), it’s could hit you hard if you’ve been sitting on gains.
If there’s a risk either of these things might affect you, you can use your annual capital gains tax allowance of £3,000 per year to realise gains slowly, without paying tax.
Read more: 10 finance decisions you should avoid before the autumn budget
You can also do this using the share exchange (Bed & ISA) process, which lets you sell assets outside an ISA and buy them back within the ISA wrapper, so you never have to worry about capital gains on these investments again.
2. There could be changes to inheritance tax
There’s a myriad of changes that the government could make, from hiking the rate, to cutting tax-free allowances or removing key exemptions. This could mean people who fall well short of the threshold of paying inheritance tax at the moment may need to consider tax planning in future.
Fortunately, there’s so much on the table, that the things most people are worried about — including cuts to the nil rate band which protects the first chunk of your estate from inheritance tax — are less likely.
They can’t be ruled out entirely, though, so if you’re worried, you can give away up to £3,000 a year within your annual gift allowance. You can also give larger sums and they will be outside of your estate after seven years. If you have children in your life who are under the age of 18, you could pay into a Junior ISA for them.
These options make sense if you’re already planning to give this money away, and you can afford it. However, it’s vital not to let tax anxiety force you into giving away money you can’t afford to part with.
3. Tax-efficient allowances could change
There are concerns that the government could cut the ISA allowance. This wouldn’t just affect those people who max it out every year, it could also send the wrong signal to new investors. They could worry that in order to get started they don’t just have to get to grips with the whole unfamiliar world of investment, but complex tax rules too.
Read more: How to prepare for possible pension changes in the budget
We can hope that this change is avoided, but if you’re worried about it, you have the money available, and were planning to invest, you can do so sooner rather than later, ahead of the budget on 30 October.
4. Pensions tax relief rules could change
There are rumours that instead of getting tax relief at the highest rate you currently pay, everyone might get the same level of relief. It might actually mean basic rate taxpayers get more in future, but it’s likely to mean higher and additional rate taxpayers get less.
This is far from guaranteed to happen, but if you’re concerned, and you have money you were planning to put into your pension anyway, higher earners might want to take as much advantage as makes sense for them, before the budget announcement.
5. The amount of tax-free cash people can take from pensions could be cut
This is a possibility, but if it did happen it would be unlikely to change overnight, and we could expect some sort of transition, so it might not affect you at all.
Read more: How Keir Starmer’s ‘painful’ autumn budget may impact your pension
The risk is that the fear of losing this right will drive people to take out money they don’t need, damaging their income in retirement and running the risk of paying all sorts of tax on this money — from income tax to capital gains tax, dividend tax and inheritance tax, depending on what they do with it. It’s important to think long and hard before touching your tax-free cash.
There seems to be plenty for people to worry about ahead of the budget, and lots of options when it comes to protecting themselves. The key to it all, however, is not to panic and rush into something that’s not right for you.
None of these changes are nailed on, so you’d need to be happy with whatever you do, even if the government ends up leaving all these taxes alone.
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