Budget negativity can be bad for your finances
- The more resigned you are to not being able to improve your financial situation, the worse that situation is likely to be – for everything from savings to property and pensions.
- Only a fifth of people who think they can’t affect their financial situation own their own home – compared to a third of those who think they have some control.
- They have around 50% less in their pension than those who think they can affect their financial situation (£84,555 compared to £123,855).
- They have a third less in stocks and shares ISAs as those who feel they have agency over their finances (£6,571 compared to £8,987).
Figures from the HL Savings & Resilience Barometer, July 2024.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Negativity can be as bad for your wealth as your health. Feeling helpless, and that there’s nothing you can do to improve your financial situation, means you’re likely to be less financially resilient across the board. We’ve been hearing about potential bad news around the Budget for months, which risks building a sense of powerlessness that can damage our finances.
The HL Savings & Resilience Barometer looks at people’s financial position when it comes to all sorts of things – from whether they have enough money at the end of the month, to their savings, pensions, and debt. It also looks whether people feel negative and disconnected from their money – so that there’s nothing they can really do to improve things.
People who feel they have no control over their financial position are likely to have less savings (50% have enough to be resilience compared to 70% of those who feel they have some control). Meanwhile, 35% have enough cash left at the end of the month (compared to 54%), 28% have enough in their pension (compared to 46%) and 20% own their own home (compared 34%).
Positive steps you can take
It can be worrying to have so much uncertainty, but you’re not helpless, because there are a number of steps you can take to protect yourself.
- Pay into a pension
One key Budget concern is around pensions. More recent reports suggest pensions tax relief is less likely to be on the table, but if you’re worried, there’s nothing stopping you paying into your pension ahead of the Budget. You have an annual allowance of up to £60,000, so there’s plenty of room to manoeuvre. If you were planning to make payments in the current tax year, and have the money available now, you’re not going to regret making better provisions for your retirement.
- Pay into an ISA
If you’re concerned about tax on investments, a stocks and shares ISA will protect you from capital gains tax and dividend tax in the future. If you’re worried about tax on savings, a cash ISA will protect you from income tax on your savings. Some people have concerns over whether anything will happen to the ISA allowance in the Budget, and securing as much of your allowance as possible ahead of the Budget will offer some protection here too.
- Use share exchange (Bed and ISA) for existing investment
If capital gains tax is a worry and you’re concerned about gains on assets outside an ISA or pension, you can realise your gains gradually, and spread them over a number of years to keep your tax bill down. At the same time, you can use the Bed & ISA process to sell assets outside an ISA – within your £3,000 CGT allowance – and move them into the ISA wrapper – so you don’t have to worry about tax on these assets in future either.
- Plan with your spouse
If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse or civil partner and there’s no capital gains tax to pay on the transfer. They can also make use of their annual CGT allowance to cut the tax bill. If they pay a lower rate of income tax, they’ll pay at least some of the CGT at a lower rate too. They can wrap investments in their annual ISA and pension allowances, to ensure as much of your collective wealth is invested as tax efficiently as possible.
- Consider making gifts
You can give away up to £3,000 a year under the current rules and it’ll come out of your estate immediately for inheritance tax purposes. Junior ISAs can be useful here too, because it counts as being given away immediately for IHT purposes, but will be tied up until they’re 18.”
