The date for Chancellor John Healey's next Budget is set for October 28, but the contents remain unknown, fueling speculation that could lead to hasty financial decisions.
Experts are urging savers and investors to remain calm, drawing lessons from previous Budget cycles where speculation caused unnecessary panic.
Past Panic Over Pension Changes
Before Rachel Reeves's two Budgets, rumors that she would target the popular 25% pension tax-free cash lump sum led to widespread withdrawals. Pensioners could withdraw up to £268,275 tax-free, but fears of a cut to £100,000 drove people to withdraw up to £10 billion unnecessarily. The change never materialized, and many would have been better off leaving their money invested.
Reeves only ruled out cutting tax-free cash at the last minute, which was too late for many. Now there are calls for Healey to clarify early to prevent a repeat.
Practical Steps to Protect Finances
Sarah Coles, head of personal finance at AJ Bell, advises focusing on actions that are beneficial regardless of Budget outcomes. She suggests seven practical steps:
- Protect existing investments: Use the Bed and ISA process to move investments into a Stocks and Shares ISA, shielding future gains and dividends from tax.
- Invest tax-free: Make an ISA your first choice for new money to protect returns from the outset.
- Review savings: With savings interest taxes rising and the Cash ISA allowance for under-65s falling to £12,000 next tax year, consider moving savings into a Cash ISA to shelter interest.
- Protect against wealth tax: Consider how assets are held as a family to minimize future capital gains or inheritance taxes.
- Use spouse allowances: Married couples and civil partners can transfer assets without immediate tax, using both partners' allowances efficiently. Parents might consider Junior ISAs or Junior SIPPs.
- Consider lifetime gifts: Larger gifts can fall outside your estate for inheritance tax after seven years, but Coles cautions, "Don't give away more than you can comfortably afford."
- Increase pension contributions: Extra contributions reduce taxable income and boost retirement savings, with tax relief meaning £100 into a pension costs £80 for basic rate taxpayers and £60 for higher rate taxpayers.
Coles said panicked decisions can prove costly, but these steps should be fine whatever happens. "If there are no changes, all you've done is tidy up your finances."
