Five steps to soften blow of Chancellor’s wrecking ball

Treasury Secretary Jeremy Hunt’s budget statement painted a bleak picture of the country’s finances, including higher taxes for millions and future energy and council taxes.

Here are five steps you can take to soften the blow.

1) Use your tax-free allowance

We will pay billions more in taxes thanks to freezes and reductions in allowances and thresholds announced in the budget, including the personal allowance, the income tax brackets, capital gains and dividend taxes. That’s why it’s more important than ever to take advantage of the available tax-free benefits.

You can deposit up to £20,000 each year into an individual stock or cash savings account, where all interest payments and investment returns remain tax-free. You can also save up to £40,000 a year for retirement, getting tax relief for the contributions you pay.

2) Make gifts to loved ones

The estate tax freeze has been extended for a further two years until 2028. That means the maximum an individual can pass on tax-free has not fallen from £325,000 since 2009.

If you believe that your estate may result in an estate tax bill upon your death, you can take steps to reduce it by making gifts during your lifetime.

You can donate up to € 3,000 per year without paying inheritance tax. You can also make tax-free gifts to loved ones when they get married or enter into a registered partnership. You can give up to £5,000 to a child, £2,500 to a grandchild or £1,000 to another person.

You can pay someone else’s living expenses on a regular basis, as long as you earn them from your monthly income and can afford them without affecting your own standard of living. Make sure you keep good records.

3) Sell assets before April

If you make a profit on the sale of an asset, for example on an investment or buy-to-let property, you must pay tax on the profit.

However, everyone has an annual tax-free capital gains allowance of £12,300. This amount will drop to £6,000 from April and then to £3,000 the year after.

Therefore, if you’re planning to sell anything substantial in the next few years, it might be worth doing it before April.

4) Pay attention to pension contributions

The state pension will rise by 10.1 percent next April, the chancellor confirmed, but future increases may not be as large. That’s why it makes sense for most employees to put as much money into your workplace or personal retirement as possible.

But if you are a big earner, keep an eye on your contributions. Lifetime benefits on pensions have been frozen again at £1,073,000 until 2026 – and it’s not just the wealthiest who are caught out.

Exclusive analysis by Investec Wealth & Investment reveals that someone with a pension pot of £512,000 today could exceed the cap by 2026 if they contribute the maximum annual allowance of £40,000, assuming a seven per cent growth.

5) Prepare to work longer hours

Next year there will be a review of the state pension age, the Chancellor confirmed. Over the next 25 years, the state pension age will increase and this review will assess whether the current timetable is appropriate.

If it is revised, some employees may have to wait longer before they can claim it. Younger workers who can afford it may now want to increase their personal pension contributions so that they are less dependent on the state pension.

… but don’t rush to buy a house

The stamp duty reduction introduced by former chancellor Kwasi Kwarteng will be reversed in 2025. From this date no stamp duty is payable on the first £125,000 of a property purchase, from the current threshold of £250,000. New buyers will not pay tax on the first £300,000 of a property purchase – down from the current level of £425,000.

If you plan to buy a property in the next few years, you may be tempted to do it before this date to save on stamp duty. However, many experts predict a cooling in the housing market, so the argument for bringing forward a purchase is not so clear-cut.

Sarah Coles, senior personal finance analyst for investment platform Hargreaves Lansdown, says: “Right now the market is giving every possible signal that buyers want to put up the heat.”