The chancellor, Rachel Reeves, delivered her long-awaited first budget on Wednesday. Here is our checklist of things you may want to do with your finances as a result.
Use your Isa allowance
The chancellor confirmed that the limit on payments into these tax-efficient wrappers will remain at £20,000 a year until 2030. If you want to invest in stocks and shares, it makes good sense to use up that allowance first, as you can keep all of your capital gains. This was the case before the budget, but the increase in the rate of capital gains tax (CGT) on shares makes it all the more important.
On Wednesday, CGT on shares and other assets went up from 20% to 24% for higher-rate taxpayers, and from 10% to 18% for basic-rate taxpayers. If you are lucky enough to make a £15,000 profit on shares, and have no losses to offset, outside an Isa you would pay CGT on everything above your £3,000 annual allowance. For a higher-rate taxpayer, that means a CGT bill of £2,880, and £12,120 in your pocket. Make the same gain inside your Isa and you will keep the whole £15,000.
You can shield stocks and shares you already own from tax on future gains by moving them into the wrapper – a process known as bed and Isa, which lots of Isa providers will help you with. However, you will pay stamp duty on shares you move, and might face CGT if you have already made a big gain, so get advice first.
Laith Khalaf, head of investment analysis at the advice firm AJ Bell, says investors doing this can use their £3,000 annual CGT allowance, and can reduce any gains by selling off loss-making shares at the same time. “Losses can be used to offset gains, thereby reducing the capital gains tax liability, then either or both investments can be rebought within the Isa to avoid tax on future gains,” he says.
If you’re buying a home, get your skates on
If you are planning on buying in England or Northern Ireland, act now to try to make sure the purchase is complete before changes in stamp duty come in next year.
The chancellor opted not to extend temporary thresholds put in place by the previous government, so from next April, you will start paying stamp duty on any property priced over £125,000, down from £250,000 now. First-time buyers will have to pay on homes worth more than £300,000, a reduction from the current £425,000. And they will get first-time buyer relief only on homes costing up to £500,000, compared with £625,000 now.
This means that if you move to a home costing £266,000, the average UK sale price according to Nationwide building society, you will have to pay £2,500 more in tax. If you are a first-time buyer, you will still not have to pay anything.
In London, where the average price is £524,000, a first-time buyer will lose their benefits and will have to pay £11,250 more than under the current rules.
It is already too late for anyone buying a second home to avoid increases in stamp duty, however, as changes to the higher rates for additional dwellings (HRAD) surcharge, paid by property buyers who already own a home, came in on Thursday.
Don’t wait for lower mortgage rates
Most mortgage experts believe that the fallout from the budget, plus next week’s US election, mean volatility ahead in terms of interest rates. So if you are coming towards the end of your current mortgage product and will need a new one, David Hollingworth at the broker L&C Mortgages suggests locking into a deal now.
Remortgage offers are typically valid for up to six months, so if your deal is ending in four or five months’ time, you can reserve a loan now and wait to see what happens. If the cost of new dealscomes down, you are not committed to that offer and can go elsewhere, and if they have risen, you have locked in at a cheaper rate.
Within hours of the budget, Virgin Money announced rate increases across its fixed mortgage range, while Santander announced it was cutting the cost of its new fixes. Post-budget, money market movements suggested that we could see new fixed-rate mortgage pricing either stay flat or edge up in the short term. But, “that’s not rocketing up”, says Hollingworth.
It is still expected that the Bank of England will cut borrowing costs from 5% to 4.75% next week. But on Thursday, investors were pricing in fewer than four interest rate cuts over the next year, compared with nearly five before the budget.
Most people taking out a mortgage are still going for fixed-rate deals, says Hollingworth. As well as the payment certainty they offer, they are also typically cheaper than base-rate tracker deals, where what you pay moves down (or up) in line with the official base rate. Late this week, the cheapest five-year fixes for remortgagers were at about 3.7%, and over two years at about 4%.
Review your pension inheritance plans
The budget contained bad news for well-off older people who planned to leave unspent pension savings to children or grandchildren after Reeves announced that this money will be included in inheritance tax (IHT).
IHT is a tax paid on someone’s assets after they die if they leave enough to go above a certain threshold. The standard IHT rate is 40%, and it is charged only on the part of the estate that is above the tax-free threshold, which remained unchanged at £325,000. (There is a separate threshold for homes.)
At the moment, pensions tend to be outside people’s estates for IHT purposes (the so-called “pension freedoms” introduced in 2015 removed a 55% charge for pensions funds which remained unused at death). However, Reeves announced that money left in a defined contribution pension after your death will be included from April 2027.
The exemption for spouses or civil partners will continue to apply, so everything can be left to them without an IHT bill. But other beneficiaries could face tax.
Bringing pensions within IHT meansanyone planning to leave money in their pension to give tax-efficiently to family after their death will need to revisit their finances and maybe review their will.
You can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate. Meanwhile, the “potentially exempt transfer” rules allow you to give money or gifts of any amount or value to anyone which will become exempt from IHT as long as you live for seven years after giving them.
Robert Salter, a director at the accountants Blick Rothenberg, says wealthier clients will consider withdrawing some of their pension savings at an earlier stage than might have otherwise been the case. “This is so they can then potentially transfer the amounts they have withdrawn to their children/grandchildren as potentially exempt transfers for IHT purposes.”
If you expect your pension to still form a large part of your estate when you die, and you have take out a life insurance plan to cover IHT, Neil Lancaster, a private client tax partner at Wilson Wright, says you should review your arrangement.
“Families may need to adjust their life cover policies to account for these potential liabilities linked to pension values,” he says.
Ask your employer about salary sacrifice
One of the big money-spinners announced on Wednesday was an increase in the national insurance contributions employers will need to make for each of their staff. From April 2025, the rate they pay will go up to 15% and the earnings threshold at which they start to pay will be reduced from £9,100 to £5,000. Employers may try to recover the costs by reducing perks, or they may be inclined to run salary sacrifice schemes, which reduce their NICs bill but offer you an advantage. The schemes let you reduce your pay by an amount which typically goes into a pension, or on a car or bike, with the payment made before tax or NI are taken off.
“Employers are staring at a significant increase in costs: facilitating salary sacrifice is one way employers can address this burden and it is likely than many firms which now don’t will make such schemes available,” says Jason Hollands, managing director of the wealth management group Evelyn Partners.
The budget small print contained some news which will make salary sacrifice more appealing to parents earning more than £60,000 a year each. Plans to change the child benefit tax charge so that paying back the benefit is based on household, rather than an individual’s, income have been quietly scrapped. This means that if there is one earner on £60,000-£80,000 they will have to return some of the money; above £80,000 they will pay back the whole lot. Reducing your salary through salary sacrifice will let you hold on to more child benefit.
‘I feared a big rise in capital gains tax’
A few weeks ago, Rupert March, a former middle-ranking executive at a global tech company, realised that he might need to cash in his employee shares amid pre-budget speculation that Rachel Reeves might raise capital gains tax to as high as 39%.
Before the budget, the 66-year-old said selling the shares in the company he used to work for “wasn’t something I was planning to do [now]. But … if it went up [from 20%] to 39%, I’d be looking at £600,000 in capital gains.”
He said: “I never managed to save significant sums while working, so there were many sleepless nights. And my employee stock plan was a constant underperfomer. However, in the last few years the stock price has risen sharply, significantly ramping up my net worth.”
After 23 years living in the EU, March and his wife are renting in London and would like to buy a home, so an extra several hundred thousand pounds in CGT would have dramatically altered their life plans.
In the end, Reeves did increase CGT, although not by as much as many had feared. For higher-rate taxpayers, CGT on share gains went up to 24% with immediate effect.
After the announcement, March said that he “couldn’t take the risk [of a big rise]” and had “saved some money” as a result of the 11th-hour disposal the day before the budget.
As someone “of pension age”, he welcomed the announcement that the basic and new state pension will increase by 4.1% in April next year, which means more than 12 million pensioners will receive up to an additional £470 a year.
