John Healey’s first Budget is looming and all taxpayers can do is hope it’s not too bad (Image: Getty)
Predecessor Rachel Reeves hit Britons with an extra £66billion of tax hikes across her first two Budgets, with pensioners, savers, property owners and investors all in the firing line. Under Andy Burnham, Labour is coming back for a third attempt. The UK’s financial situation is even more perilous today, as rising gilt yields drive up debt servicing costs and squeeze Healey’s fiscal headroom. With Labour MPs likely to rebel at spending cuts, his only option may be to hike taxes.
Rates on pensions, ISAs, inheritances, gifting and wealth taxes are causing huge concern, as two-thirds of wealthier savers fear Labour will strike, according to research from wealth management firm Saltus. Partner Mike Simpson said: “Five years ago, some of these policies barely featured. Today, they are shaping how people think about their financial futures.”
In the run-up to the last Budget, many took their 25% pension tax-free cash early, fearing a Reeves raid that ultimately didn’t happen. This highlights the danger of acting on pre-Budget speculation, as that money will have lost its pension tax benefits. There is evidence that many investors are selling stocks and shares as pressure grows on Healey to hike capital gains tax (CGT) rates.
Today, CGT is charged at 18% for basic-rate taxpayers and 24% for higher earners. Many in Labour would like to see them brought into line with income tax, which would lift them to 20%, 40% and 45%.
Joshua Raymond, managing director UK at XTB, said the number of his clients closing stock positions hit record rates in September. “When you tell people you might tax their gains harder, don’t be surprised when they rush to bank them while they still can.”
He urged Healey to end the speculation and rule out a CGT rise now, otherwise more will be tempted to sell, even if it’s not in their interests. Previous CGT hikes have come into force with immediate effect, so after the Budget it could be too late. You must still tread carefully.
Faye Church, chartered financial planner at Rathbones, said if you hold assets outside an ISA or pension that have risen significantly in value, consider whether crystallising gains at current CGT rates aligns with your long-term plans.
If they do, married couples and civil partners should use both tax allowances, for example by transferring assets into the name of a partner who pays less tax before disposing of them.
Anyone who holds shares outside of an ISA might consider selling at least some of them, using the £3,000 annual CGT exemption, then shifting them into an ISA to ensure future returns are tax-free. The process is known as Bed & ISA.
Church said there had been less speculation this year about a potential pensions tax raid, so avoid panicking. “Anyone considering accessing their pension before the Budget should ask whether it would still be the right decision if there were no Budget at all.”
If the answer is yes, consider going ahead. Otherwise, think twice. Church said don’t ignore previously announced Labour tax changes when planning, such as bringing unused pensions into the inheritance tax net from April 2027.
There is also a talk on Labour’s Mansion Tax hitting properties worth more than £1.5million, plus more inheritance tax. Time is short, but don’t panic into making rushed pre-Budget decisions you may regret later.
