Forecasting the Autumn Budget

It is impossible for us to know conclusively what might change and while there are some areas we have been talking about since before the election where action can be considered, it is difficult to know for sure the impact on individuals.

With any decision based on speculation there is the risk of unforeseen consequences and the possibility you may end up being disadvantaged.

There are some actions that we believe are worth considering although time is rapidly running out. These are actions that you may have been considering anyway and you are simply bringing the transaction forward rather than trying to second-guess what may be in the Budget.

Given pension tax relief is unlikely to be more generous under any new rules, if you are planning on making additional pension contributions later this year, or before the end of this tax year, it would be worth considering bringing any contributions forward.

Labour may reduce the amount you can pay into a pension which is currently set at a maximum of £60,000 a year. There is also currently the ability to carry forward unused pensions allowances from previous years which could potentially permit contributions to be paid of up to £200,000 and receive full tax relief. They may seek to change/reduce this so again bringing forward plans to take advantage of the current reliefs may be worthwhile.

If you are thinking of taking your pension lump sum perhaps in the next few years, then taking it before the Budget would avoid any potential changes.  Our view is that it is unlikely the current 25% tax-free allowance will increase so by acting now, you will at least secure your current entitlement.

Retaining money in pension funds is currently attractive for Inheritance Tax purposes although there is also the possibility of reform here as well. Except for the tax-free lump sum point above, we believe it is sensible not to take any pre-emptive action as this will likely result in significant Income Tax liabilities and the pension income net of Income Tax being placed back into your Inheritance taxable estate.  The best course of action for now is to await any changes affecting the Inheritance Tax treatment of pension funds.  Once these are known and properly digested, your financial planner can advise you individually on how this may impact your financial plan and advise on any course of action you should be considering.

Labour have ruled out introducing Capital Gains Tax (CGT) on the disposal of a primary residence, but we could see increases in the CGT tax rate or a further reduction in the annual-exempt amount.

Under the Conservatives, the CGT annual exempt amount fell from £12,300 in 2022 to £6,000 last April and £3,000 from April this year.

As a result of the reduction in the annual exempt amount, we think it will be more common to pay CGT in the future. While paying any tax can be galling, this may be one of the more palatable taxes given at present it is only payable on a capital gain and the non-property related gain rates are half that of Income Taxes: 10% for a basic rate taxpayer and 20% for higher rate taxpayers. Property-related gains are higher at 18% and 24% respectively. Media speculation however is that there may potentially be an increase in rates on the way, perhaps an alignment between CGT and Income Tax rates so an increase to 20% for a basic rate taxpayer and 40% for higher rate taxpayers.

As the current rates of CGT non-property-related gains are relatively low, there can be a case for realising gains now. The slight risk with this approach is that if rates do not go up, tax will have been brought forward unnecessarily.

If you have any investments outside of the Old Mill portfolios that you have held for a number of years, now may be an ideal opportunity to ask your financial planner to review them in terms of their suitability to support your financial plans.  If you are sitting on sizeable capital gains, there may be a case to realise some of these gains now to be taxed at current CGT rates. Please note that these points do not constitute advice and your financial planner can provide specific advice to you if appropriate.

While Labour was very careful to reassure people that there would not be a ‘tax shock’ if they were elected, the rhetoric since has pointed towards taxes going up. If you are approaching retirement or wish to draw upon your pension in the near future, it may be beneficial to bring this forward while we know the rules. It is certainly wise to ensure you are maximising the allowances you have ahead of the Budget, whether it be using the maximum current Individual Savings Account (ISA) allowances or gifting to your family.

While it is not certain that Capital Gains Tax will change, if you have large capital gains and are able to crystalise these at a 10% rate of tax, then this may be worth considering as it is unlikely this rate of tax will be lower in any future changes. Do speak to your financial planner if you want to discuss your personal circumstances.