With four days to go until the budget, this could be your last chance to take advantage of £95,000 worth of tax breaks and allowances.
Whether it’s maxing out the £20,000 Isa allowance, saving the full £60,000 into a pension or cashing in £3,000 of capital gains, savers are rushing to make use of allowances while they can.
This year is on track for record contributions into pensions and Junior Isas, according to the investment platform, Hargreaves Lansdown, and second only to the pandemic for savings into adult Isas.
The number of savers using up their full £20,000 Isa allowance for the 2024-25 tax year is up 40 per cent on a year ago, Hargreaves said, and the number who have paid in the maximum £60,000 into a self-invested personal pension with the platform is up 69 per cent.
Anna Murdock from the wealth manager JM Finn said: “Some people always leave it to the end of the tax year to invest in their Isas, but this year we’re having many of those ‘tax year-end’ conversations now, ahead of any potential changes coming from the budget.” It might be cutting it fine, but you still have time to beat the budget and limit the damage of any tax changes that could be announced on Wednesday.Advertisement
Sort your savings: up to £32,000
The chancellor is reportedly going to increase the rate of capital gains tax (CGT) on shares by several percentage points, although rates on property sales are likely to remain untouched.
Your first £3,000 of gains a year are tax-free. After that, basic-rate taxpayers pay 10 per cent on gains on investments held outside an Isa when they sell, and higher and additional-rate taxpayers 20 per cent.
Time your sale carefully. Capital gains tax is only charged when you realise gains, so you may wish to split your sale across different tax years where possible. If you sell at a loss, it is possible to deduct this amount from any gains made on other assets when determining your CGT bill.
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Consider making use of the £20,000 annual Isa allowance for investments instead. Any gains, dividends or savings interest made in these accounts are tax-free. If you have any unused capital gains allowance you could sell enough shares to max it out, then immediately rebuy them with a stocks and shares Isa, protecting any future gains from tax. This process is sometimes called “Bed and Isa”.
The investment platform Bestinvest said applications for Bed and Isa transfers were up 25 per cent since the new government was elected on July 5 compared with the same period last year.
Don’t forget the kids. You can put £9,000 a year into a Junior Isa for children or grandchildren to shelter more cash from the taxman. They will get control of the account at age 16 and can withdraw the money when they reach 18.
Boosting your pension: up to £60,000
Under auto-enrolment, employees aged between 22 and state pension age who earn at least £10,000 from one job are entered into a workplace pension scheme where they contribute a minimum of 5 per cent of their earnings, and their employer pays 3 per cent. But some companies are far more generous and pay in more than the minimum.
Unlike on staff’s wages, employers do not pay national insurance on contributions to their pensions, but there are rumours that this could change. Employers pay national insurance at a rate of 13.8 per cent for workers earning more than £9,100. Having to do this on pension contributions too could discourage firms from contributing more than the minimum 3 per cent.
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The knock-on effect would be a hit to workers’ retirement savings. A survey of the Reward & Employee Benefits Association’s 2,000 members found that 42 per cent who contribute more than the minimum would reduce payments. Some 63 per cent would be less likely to raise contributions in the future.
“If you have an employer that matches what you contribute or pays in more, pay in as much as you can to make the most of it,” said Helen Morrissey from Hargreaves Lansdown.
You can make additional pensions contributions, up to an annual allowance of £60,000 a year including tax relief, through a workplace pension or Sipp. Higher or additional-rate taxpayers may need to claim any additional tax relief back from HM Revenue & Customs.
Give it away: £3,000 or more
There is also speculation that inheritance tax (IHT) rules will be tightened up in the budget to raise funds. Families could consider giving away money or assets, taking advantage of the various reliefs available to pass on money to family or friends.
A person can leave up to £325,000 free of inheritance tax when they die, and there is an additional £175,000 allowance if you leave a main residence to a direct descendant. Amounts above this are normally taxed at 40 per cent. There is no IHT payable on transfers between people who are married or in a civil partnership.
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The gifting allowance lets you give away £3,000 a year, split between as many people as you like, either in the form of cash, investments or possessions such as jewellery or antiques. You can also give an extra £5,000 to a child or a stepchild for their wedding or civil partnership. It’s £2,500 for a grandchild or great-grandchild, and £1,000 to any other person.
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Under the seven-year rule, you can give away larger amounts free of inheritance tax as long as you live for seven years after making the gift, and if you die between three and seven years after making the gift, IHT is charged on a sliding scale. There is talk of the rule being extended to ten years.
Money in a pension can usually be passed on free from inheritance tax,and can also be withdrawn by your beneficiary free of income tax if you die before the age of 75, so financial advisers typically suggest using up other savings such as Isas before you tap into your pot.
Rob Morgan from the wealth manager Charles Stanley said: “If you haven’t already, now is the time to consider the rules as they stand, who you want to benefit from your assets and whether you and your family might be affected.”
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Fill it up: about £3.30
If your petrol tank is getting low, be sure to head to the forecourt before Wednesday. The 5p cut to fuel duty made in 2022 could be reversed, with fuel duty raised in line with inflation for the first time since 2010. Fuel duty is 52.95p per litre of petrol or diesel, with 20 per cent VAT levied on top.
The motorist group the AA said reversing the 5p cut would add 6p a litre to the price of petrol, which is now 134.8p on average. The predicted increase could cause the cost of filling up a typical 55-litre family car to rise from £74.14 to £77.44.
Edmund King, the president of the AA, said: “Hiking fuel duty at the onset of winter is the worst possible time to do it. It is when cold engines and increased use of heaters, wipers and lights send fuel consumption and costs shooting up.”