Five things you can do TODAY to beat Rachel Reeves’ Budget Tax Raid

Rachel Reeves will submit her first budget this week, which is widely expected to announce sweeping tax increases.

The government has said the tax burden will fall on those with the broadest shoulders, and many people are understandably concerned about what this could mean for their money.

It is not recommended to make hasty decisions based on speculation, and financial experts urge people not to panic and do something they might regret later.

However, there are a few simple things you can still consider to protect some of your money from tax fraud.

We look at what potential changes await you and some adjustments you can make ahead of the fall budget.

Make use of your tax-free amounts

Reeves is widely expected to stage a capital gains tax raid to boost the treasury after repeatedly ruling out a rate hike during the election.

CGT is levied on the profits you make when you sell investments, second properties, business properties and personal belongings worth more than £6,000, with profits above the annual tax-free amount of £3,000 all falling within the tax net.

The rate someone pays depends on whether he or she is a basic taxpayer, a higher taxpayer or an additional taxpayer, and on the type of assets he or she sells.

However, in most cases CGT rates are lower than income tax rates, making them a prime target for an increase.

Basic rate taxpayers with a taxable income of less than £50,270 generally pay 10 percent capital gains tax, while higher and additional rate taxpayers pay 20 percent.

But rates are different for properties that aren’t your own home. Gains from second homes and owner-occupied properties face capital gains tax rates of 18 percent for basic rate taxpayers, and 24 percent for higher and additional rate taxpayers (the latter rate was reduced from 28 percent from April 2024).

It is unclear whether Reeves will abolish the tax free allowance, currently £3,000, or increase overall rates, which is more likely.

This means you may have to pay more tax on your investments or second properties.

If you think you might be hit by a CGT raid, the first thing you should do is make sure you use all the tax-free amounts available.

If you hold investments, make sure you’ve already used your £3,000 tax-free CGT allowance, as well as your annual Isa allowance limit.

ISAS allows savers to put aside up to £20,000 each year tax-free, meaning they can avoid being taxed on any gains.

Gary Smith, financial planning partner at Evelyn Partners, said: ‘Higher CGT rates should focus everyone’s attention, primarily on the importance of tax wrappers such as Isas and pensions, which protect investments from tax on both capital gains and dividends, and in the second place on the use of annual interest rates. tax-free allowances.

‘This is particularly important if you are married or in a civil partnership and can take advantage of both types of benefits, and transfer savings and investments so they don’t trigger unnecessary tax liabilities.’

Shared allowance between spouses

You can also soften some of the impact of higher CGT rates by transferring some of your shares to a spouse or civil partner.

A couple can use their two CGT allowances jointly, giving them a limit of £6,000. If you fall into different tax brackets, the profit above the zero rate can be realized by the taxpayer with the lower rate. This helps reduce your overall CGT bill.

Please note that once you transfer the shares, your spouse or partner becomes the full owner of the investments.

Sharing the burden: Married or civil partnership couples can take advantage of a joint capital gains tax allowance, shielding up to £6,000 of profits from tax

AJ Bell pensions and savings expert Charlene Young says: ‘All investments transferred to your spouse or civil partner are exempt from capital gains tax.

‘This means that if your spouse has not used up their tax-free allowance this year and still has an Isa allowance left, you can take advantage of those tax benefits.

‘You just need to make sure you keep track of the original cost of the asset because that will be used when your partner comes to sell it.

‘If your spouse is at the basic rate of income tax, but you are a higher or additional rate taxpayer, there is a double benefit as current rules mean they pay capital gains tax at a lower rate.’

Bed and Jes

It’s always a good idea to make sure you put money into an Isa and don’t pay more tax than you need to, whatever the budget.

You can move your shares into an Isa by doing something called a ‘bed and Isa’, which involves selling shares and then buying them back from the Isa.

However, please note that this may result in a CGT surcharge if the winnings exceed the £3,000 allowance.

You can also transfer the shares to a spouse if they are a lower taxpayer, and then sell and redeem the shares.

However, you should also be aware that the government could introduce a cap on the money saved in Isas. Although there is an annual Isa allowance of £20,000, there is currently no limit to how much money savers can accumulate in an Isa over their lifetime.

But there is speculation that Labor could introduce a lifetime limit of £500,000, which could spell trouble for those sitting on bigger pots.

They could also reduce the £20,000 annual Isa allowance by £5,000, meaning less of your money ends up in the tax-free wrapper each year.

Reeves will not make any changes to the duty-free packaging on Wednesday, and instead changes will likely be made in April, giving savers some time to work out a plan of action.

Gifts

If you want to protect your money in other ways, you can always donate some of your savings to a family member.

You can currently donate up to £3,000, which is covered by the annual gift allowance, but you can also donate larger amounts through a system called potentially exempt transfers (PETs).

These are excluded from your estate after seven years, provided you do not die within that period – a rule introduced to prevent people from avoiding inheritance tax by giving away large sums of money at an older age.

Generous gift: If you want to give money to friends or family, this can help reduce your tax burden, but there are rules around this that you should be aware of

There is currently no limit to the amount you can donate as a PET, but it will only be exempt from inheritance tax if you survive seven years after the donation.

Hargreaves Lansdown says more than one in seven customers said they had been prompted to donate money to family.

However, there is speculation that Labor could change the rules and increase the number of years from seven to 10, making it harder to pass on your money.

This means that if you are considering donating some of your savings to reduce inheritance taxes, it may be better to do it sooner rather than later.

But you don’t necessarily need to worry unless estate taxes could become a problem for your beneficiaries.

You must be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to pay the inheritance tax.

And there’s another hefty allowance – known as the nil rate band – which raises the threshold to a joint £1 million if you have a partner, own a property and plan to leave money to your direct descendants.

Don’t panic

Reeves will likely make some big changes that could allow more of your money to fall under the tax.

But when it comes to making changes to your finances, the most important thing is to think long term and not make hasty decisions.

Emma Simon of Fidelity says: ‘It’s never a good idea to make significant changes to your investments based on budget speculation. This rarely comes down to good financial planning.

‘However, it is always worth regularly reviewing your finances to ensure you are making the most of all the tax benefits.

‘This includes placing savings and investments into tax-free wrappers such as Isas and pensions.’

It’s important to note that while speculation has reached boiling point, we still don’t know what Reeves will announce in the budget.

We also don’t know when changes are likely to be made. She may implement the changes immediately to prevent people from selling their belongings.

Or they may have to wait until the next tax year, which starts in April, giving you a little more time to think about any changes you want to make.

Hargreaves Lansdown says: ‘Not every last-minute move is such a great idea… While smart moves at the eleventh hour can leave you significantly better off, don’t feel hasty if you make a mistake that does more harm than good can do.’