Chancellor Rachel Reeves is expected to hit savers in a number of ways
It is now just 10 days to the Budget on November 26 – and the government has reportedly decided on a host of cash raising measures which could hit people’s finances. Chancellor Rachel Reeves will reportedly freeze thresholds for an extra two years after abandoning her plans to hike income tax in the budget.
She could also bring in a new levy on high-value properties, in the measures to be announced on November 26. The Chancellor had been expected to raise income tax in the face of a yawning gap in her spending plans, hinting as recently as Monday that the alternative would be “deep cuts” to public investment.
But she has ditched the plan, which would have broken a Labour manifesto promise. Ms Reeves is understood to have U-turned after improved forecasting from the Office for Budget Responsibility, but other tax rises have not been ruled out.
Limits to salary sacrifice schemes and new measures to tax electric vehicles are still in the mix, as the Treasury pursues a “smorgasbord” approach of raising a range of smaller taxes. One financial expert highlighted ‘strong rumours’ predicting income tax will rise, and the Cash ISA limit will be cut in half.
Laura Purkess, Personal Finance Expert at Investing Insiders told pensioners and savers they should take four actions to minimise the effect of the Autumn Budget.
Ms Purkess said: “This Budget looks set to be a big one, with speculation rife about a number of significant changes to tax rules. While it is all speculation at this stage, rumours a few weeks out from Budgets tend to be grounded in some truth, and it’s likely that the policies are at least under consideration, although plans can be changed right up to the last minute.
“That said, nothing good will come from making major financial decisions based on rumours. Thousands of people reacted to speculated changes to pension tax-free lump sums ahead of last year’s Budget, and then nothing happened, leaving them needlessly worse off.”
Top tips to prepare for the Autumn Budget
ISA savings
Check you’ve maxed out all your ISA limit, or contribute as much as you can “The Chancellor is reportedly considering cutting the cash ISA allowance, which is the amount you can save into a cash ISA each year, down from £20,000 to £12,000 or even £10,000.
“If you have that much cash to save and haven’t maxed out your ISA allowance for this tax year, it could be worth doing so.
“If you had £20k to invest for the next few years and the cash ISA allowance was cut to £10,000, you could pay hundreds or even thousands of pounds in tax by putting the remainder into a taxable savings account.
“So, ensuring you have at least used up your limit this year could save you money. Even if you don’t have much to save right now, it’s still worth putting it into an ISA over a taxable savings account, as your savings will grow over time and you don’t want to pay more tax than you need to.
“If you have longer term savings goals and a comfortable savings buffer, it could be worth considering putting some into a stocks and shares ISA instead. The stock market has historically outperformed money held in cash over the longer term (think five years or more), so you could be better off.”
Get the best savings rate on the market
“There is never a bad time to make sure you’re getting the best savings rate. Bagging the best rate now will make your money work harder and boost your savings, which could put you in better stead if any taxes are raised down the line.
“The top easy-access savings accounts currently pay around 4.5 per cent. Sidekick’s Multi Shield account is paying 4.48 per cent, while from high street names, Tesco Bank is paying 4.2 per cent on its Internet Saver.
“Just a few percentage points can make a big difference to the returns on your savings long-term, so don’t give in to inertia and accept a lower rate than you could get.”
Pay your pension some attention
“Pensions have been in the firing line for the past few Budgets, and this year they look set to make a comeback. Recent speculation suggests that salary sacrifice, a way of paying salary into your pension without incurring National Insurance payments, could be capped at £2,000 a year.
“With pensions, it’s never a good idea to make panic decisions, as these are often irreversible and can have a lasting impact on your finances. For example, taking tax-free cash out of your pension when you don’t need it means it stops growing in a tax-free environment, and your compound growth will be dented. Recent analysis shows this could cost you as much as £63,000 in retirement.
“However, it’s always a good idea to make sure your pensions are performing as best they can, and that you’ve contributed as much as you can comfortably afford. A good first step is to check if you’re contributing to a pension at all. If you’re employed, you should be auto-enrolled into a scheme, unless you’ve opted out, whereas if you’re self-employed, you’ll usually need to set up your own personal pension and start contributing.
“Then, check that you know where any old pensions are. Most people have accumulated several pensions over their working life. Losing track of a pension pot could see you miss out on thousands of pounds of your own money.
“Combining your pensions is a good way to ensure you know where all your cash is – and it will help it benefit from compound growth. Larger pots will generate greater returns, which are then re-invested, meaning your pot grows more quickly.
“If you can afford to, consider increasing your contributions beyond the auto-enrolment amount of 8 per cent. You benefit from employer contributions (if you’re employed) and ‘pensions tax relief’ (where the government repays your tax into your pension), which are both basically free cash you wouldn’t otherwise get.”
Don’t panic or make snap decisions – and speak to an expert for help
“Panicking about speculation is never a good idea, as until it is announced, it remains just that – speculation. Plans are constantly changing before Budgets, so there is no point making a decision based on something that might happen, especially since most policies that are announced don’t come into effect straight away, meaning you have time to make decisions once you know what is actually happening.
“If you’re concerned about potential changes and have considerable savings or assets, consider speaking to a professional like a financial adviser. Be aware that they will usually charge for their services, but you may save more than you’ll pay by getting professional help.
“Remember that some changes being mentioned are unlikely to affect you if you have smaller savings or lower value assets.
“For example, if the cash ISA limit is cut, this is only likely to affect people who regularly max out their £20,000 allowance. If you are only saving £5,000 a year, a limit cut to £10,000 won’t impact you.”
