- The autumn Budget is usually in late October or early November – six months away.
- Threats to global growth from the looming threat of Trump’s tariffs mean the government may not have the tax income it needs to stay within its fiscal rules by then.
- This could mean spending cuts or tax rises.
- While the PM has insisted the fiscal rules and the pledge not to change income tax, NI or VAT are iron clad, circumstances could mean a rethink.
- You have six months to protect yourself from whatever the autumn Budget holds.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“The threat of tariffs and the looming spectre of global recession have shelved your relaxing summer plans. Forget long lazy days on the beach, this summer is all about putting the legwork in to get Red Box Ready. The fallout from the tariff drama could come together in a difficult autumn Budget, so we need to fix the roof while the sun shines, and prepare for whatever it may hold.
Six steps to protect yourself from whatever the autumn Budget holds
- Bring your taxable income down
Taxes on income are a major money-spinner for the government, so you may need to prepare for more tax. We could get an extension to the freeze in the income tax thresholds, so this stealth tax has even more pain in store. That may not be enough though, and if the situation deteriorates significantly, we can’t completely rule out a U-turn on promises not to hike income tax – although this would be politically incredibly difficult, so wouldn’t be an easy step for the government to take.
You can bring your taxable income down. In terms of earnings, check if your employer operates a salary sacrifice scheme, where you give up a portion of your salary, and spend it on certain things free of tax – including pensions. If not, you can still pay into a pension and receive tax relief at your highest marginal rate. If you’re making income from savings interest, you can use a cash ISA to protect as much as possible from tax. This is particularly beneficial for higher and additional rate taxpayers, who get a smaller personal savings allowance (or none at all) and pay a higher rate on the excess.
- Take advantage of all your ISA allowances while you know where you stand
The government is set to launch a consultation on the future of ISAs, which could lead to changes in the autumn Budget. There’s the potential for positive reforms, prioritising improvements to the current regime rather than removing incentives to support investing and saving. However, it still makes sense to make the most of the system as it stands, ahead of any changes, while you can be certain of the allowances and tax treatment. The new tax year has brought a fresh new set of allowances from cash ISAs to stocks and shares ISAs, the Junior ISA and the Lifetime ISA.
- Make fewer taxable gains on investments
One benefit of the turmoil is that you may have some losses you can crystallise and use to offset capital gains and cut your tax bill. This shouldn’t drive your decisions about what to own, but if it makes sense for you to sell any assets that have made a loss, you can report them, and then use them to reduce overall taxable gains either in this year or in future years – by carrying them forward. It’s a good idea to realise gains as you go along too, so you can take advantage of your £3,000 annual allowance for tax free gains.
When you’re selling up, if you have the ISA allowance available, you can move the assets into a stocks and shares ISA, using the Bed & ISA or share exchange process, which will ensure these investments are protected from capital gains tax in future too.
- Cut your costs and build a savings safety net in case things are squeezed
Wages have been rising ahead of prices for a while now, so more people have wiggle room in their budgets. It’s tempting to enjoy the freedom, but this is your chance to put it to better use. If the Budget hikes up your costs, or cuts income, you may need to revisiting things like household bills and spending to see if you can cut your costs again. It’s a good idea to do this now instead, so you can free up a monthly sum to prepare for the future.
While you’re working age, you should be building an emergency savings safety net big enough to cover 3-6 months’ worth of essential sending in a competitive easy access account. Once you’ve retired, you should aim for 1-3 years’ worth. If this needs work, it should be a priority, but don’t overlook the longer term. There’s no need to hoard more cash than you need, when it could be working harder for your future in investments and pensions.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
- Use your pension allowance in plenty of time
Pensions are an incredibly tax-efficient way to save for the long term and there are a variety of allowances that you can make use of. The annual allowance allows you to contribute whatever is the lowest of your annual income and £60,000 to your pension and receive tax relief at your marginal rate. This means that a higher rate taxpayer making a £60,000 pension contribution will find it only costs them £36,000. Added to this you can also make use of any unused allowances from the previous three tax years through carry forward. This means that provided you earn enough you can contribute up to £240,000 to your pension this tax year.
You can also take the opportunity to boost your loved one’s retirement prospects. You can contribute up to £2,880 to the SIPP of a non-working spouse or child and they will receive a tax relief top up to £3,600. It’s a great use of your money if you have used your own allowances and it can help a spouse or partner to keep contributing to their pension during times when they aren’t working. You are also giving a child a real leg up the retirement ladder with these early contributions.
- Consider gifts
The last Budget was notable for the announcement that from 2027 pensions would become liable for inheritance tax. The rules are not yet set in stone but it is making people think about what they can do to mitigate a bill.
You have a variety of allowances available to you. For instance, you have an annual allowance of £3,000 per year. This money will drop out of your estate for inheritance tax purposes immediately. You can give the whole amount to one person, or split it between several. You also have a small gift allowance of £250. You can give as many of these as you want (although not to the person you gave £3,000 to). There are also gifts attached to loved ones getting married or entering a civil partnership. You can give up to £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else and it leaves your estate immediately.
Gifting out of surplus income may also prove popular. You can give any amount, and it leaves your estate straightaway, as long as you can prove the gifts are regular, come from income and don’t affect your standard of living. Examples could include paying school fees for a grandchild. You will need to make careful notes of your gifting to prove it is being made regularly and enable your loved ones to explain to HMRC if any questions are asked.
You can also make larger one-off gifts, which will pass out of your estate after seven years. These are known as potentially exempt transfers. If you’re concerned about a potential inheritance tax bill, you might want to make the gift sooner rather than later, and get the clock ticking.
