As we wait with bated breath to see what financial rabbits Rachel Reeves pulls out of her Budget hat, many people are making provisions for scenarios that may never happen.
Investment experts, such as James Norton, head of Vanguard’s Investment division, warn against “knee-jerk” reactions to budget speculation, warning that savers and investors “shouldn’t let their judgments be clouded.”
However, amid all the uncertainty, there are some changes coming that we are already aware of and can work on to make the most of. So don’t be, as the White Rabbit from Alice in Wonderland would say, late for a very important appointment. Wealth & Personal Finance explores how to plan ahead.
As the White Rabbit from Alice in Wonderland would say: don’t be late for a very important date
1. Stamp duty is going up from March 31
What’s happening?
The zero-rate threshold for stamp duty, the level below which you pay no tax on the purchase of a home, will decrease after a temporary increase.
What difference will it make?
The current zero interest threshold of £250,000 will return to the previous level of £125,000. The zero-rate threshold for first-time buyers, currently £425,000, will revert to its previous figure of £300,000.
That means that from March 31, a first-time buyer purchasing a property worth £425,000 will pay £6,250 in stamp duty – at a time when they would have paid nothing. Someone exchanging their first property for a £600,000 house would have to pay £20,000 in stamp duty, compared to £17,500 today.
What can I do about it now?
Ensuring you complete property transactions before March 31 may be the only way to avoid the stamp duty increase in most cases.
You can increase your chances by having documents ready as quickly as possible and ensuring that you hire a trusted attorney. Being ‘mortgage ready’ with a high credit score also helps, but success will be partly down to luck.
2. Holiday rental deduction removed from April
What’s happening?
Homes rented short-term as furnished vacation rentals (FHL) currently benefit from tax benefits not available to other rental properties, but these benefits will soon come to an end.
What difference will it make?
Simon Thomas, managing director of accountancy firm Ridgefield Consulting, says landlords can lose thousands of pounds in a number of ways.
A landlord of furnished holiday homes can currently deduct 100 percent of the mortgage interest from the rental costs, which drops to a credit of 20 percent.
On a rental income of £24,000 a year, with £10,000 in mortgage interest, they would pay £7,600 in tax instead of £5,600 after the change.
Those looking to invest in new furnished vacation rentals will also face higher upfront costs. Currently, full capital exemptions can be claimed for the purchase of necessary furnishings for FHLs, such as beds, sofas and appliances.
Once the new rules come into force, lessors of FHLs will only be able to claim for the replacement of such items, in lieu of the initial purchase, which Mr Thomas says will result in an additional £2,000 of tax becoming payable if £Er 5,000 euros is spent on new furniture, assuming a tax rate of 40 percent.
Those looking to invest in new furnished vacation rentals will also face higher upfront costs
What can I do about it now?
It may be worth seeking advice before April on what can be done, especially in relation to claiming capital allowances. Some landlords may also benefit from putting a holiday home into a corporate structure rather than owning it themselves.
Others may want to sell quickly or pass their property on to a family member if this seems like the right time to do so.
“It would be wise for anyone affected to consider their options now, plan ahead and take advantage of the tax benefits currently available,” said Ben Handley, tax partner at accountancy firm BDO.
3. Changes to inheritance tax for non-doms
What’s happening?
The ‘protected trust regime’, which means assets in offshore trusts created by those not based in Britain are protected from inheritance tax (IHT), is coming to an end.
Trusts with offshore assets in them are not eligible for IHT protection, regardless of when they were established.
What a difference will make it?
Part of the reason these trusts have been valuable is that, even if non-domiciled individuals return to the UK, the assets in them have not become part of their estate for IHT reasons.
What can I do about it?
This is an incredibly complex area, and we’ll have to wait until the Budget to see more about non-domicile rules in general, but in some cases a non-UK domicile may be the most tax-efficient decision. Making gifts from the trust, provided you survive for seven years afterward, is one way to reduce liability.
There will be more details on the transitional rules for trusts already created in the budget.
4. Price of drinks will increase from February
What’s happening?
Alcohol taxes are going up and a “temporary easement” that lowered the price of wine is set to expire on February 1.
What difference will it make?
Wines are taxed based on their alcohol content. A consortium of wine retailers, including Laithwaite’s and Majestic, say this will drive up the cost of 75 percent of red wines, which tend to be higher in alcohol.
The Wine and Spirit Trade Association (WSTA) adds that the red tape around the many different tax bands will also increase costs. Alcohol duty could also rise in the budget – forecasts suggest it could rise by two to six per cent.
What can I do about it now?
Many of us need little excuse to buy wine in advance for Christmas to save on tax, but those who view good wine as an investment may also want to consider the coming increases.
Investments in fine wine can also be a way to avoid the expected increase in capital gains tax, as it counts as a ‘wasteful asset’ and so is not subject to CGT on any gains.
However, wine investments are extremely volatile and you should not consider it unless you are prepared to lose your money.
5. Tax form: October 31 or January 31
What’s happening?
Frozen tax thresholds and increases in wages and pensions mean thousands more people will have to file tax returns this year.
The new state pension is worth £11,502 a year, thanks to the triple lock, where it rises each year at the highest rate of inflation, average wage growth or 2.5 per cent. It means pensioners who receive only the state pension will have to earn a further £1,067 before having to pay income tax.
Frozen tax thresholds and increases in wages and pensions mean thousands more people will have to file tax returns this year
Meanwhile, high interest rates on bank deposits mean more of us have to pay tax on our savings, which may make filing a tax return necessary.
Many with less complex tax matters will also have received a ‘simple tax assessment’ stating that tax is due and that they must pay it. This year, 560,000 simple assessments were sent, 140,000 of which went to pensioners.
Tax returns are due by October 31 if you file paper, or by January 31 if you file online. If you have received a simple tax assessment letter, that tax is also due on January 31.
What can I do about it now?
If you think you may owe tax and it is not being collected through PAYE, you can go to gov.uk and check whether you need to complete a tax return at gov.uk/check-if-you-need-tax-revenue. If you do, make sure you return it within the deadline and pay the necessary tax.
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