Autumn Budget rumours: tax hikes, pension changes and ISA risks

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Full podcast episode transcript

[0:09] Sarah Coles: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. I’m Sarah Coles – Head of Personal Finance.

[0:14] Helen Morrissey: And I’m Helen Morrissey – Head of Retirement Analysis.

[0:17] Sarah Coles: And we’re having a marvellous time here because we’re so excited about the Budget, which has now been announced for 26^th November. It’s quite a long run-in! I mean, it’s safe to say, there’s plenty of opportunity for people to start speculating.

[0:28] Helen Morrissey: I feel – from a retirement point of view – the speculation hasn’t really died down from the last Budget, to be honest, Sarah.

[0:34] Sarah Coles: [Laughs]

[0:35] Helen Morrissey: So, I’m just glad that the Budget date has finally been announced, so I can see some kind of end point.

[0:40] Sarah Coles: So, we’ve already had plenty thrown into the mix, haven’t we? Lots of different suggestions about things might happen – so it is a good idea to run through some of the runners and riders and get an idea of what might happen.

[0:49] Helen Morrissey: This is definitely one for you here, Sarah – there are main questions over whether there’s gonna be changes announced to the ISA regime, isn’t there?

[0:56] Sarah Coles: Yes. So, cuts to the Cash ISA limit, actually, still yet to be completely ruled out.

Now, obviously, if there were these cuts, this would be really miserable news for savers. Of course, if they’re saving for the short-term, then, actually, cash is gonna be the right place for their money – so they’d be forced to pay more tax through no fault of their own. And, of course, if they have a longer time horizon – and they’re still in cash – then the reason they’re not investing yet isn’t anything to do with tax. It comes down to the fact that they’re actually not comfortable with investing ‘cause they don’t know enough about it.

[1:21] Helen Morrissey: Is there a worry that people would react and then come to regret it, d’you think?

[1:25] Sarah Coles: Yeah – so I think, when the rumours were going round about what might happen to the Cash ISA, there’s an awful lot of people who are thinking, ‘Well, maybe I ought to take advantage of my Cash ISA allowance while I can.’

There is a chance that some people might end up prioritising cash for their ISA allowance – but, actually, their circumstances might be better to suited to investment.

I suppose, one of the biggest advantages to this is that, if you make this decision – and you think, ‘Ah, I’ve made the wrong decision – I should be investing’ – it’s really easy to switch. You know, it’s very straightforward – you can switch from cash to investment, investment back again – and so it’s not a ‘Once-and-done’ decision – you can change it.

There is also a number of rumours around the LISA – the Lifetime ISA.

[1:58] Helen Morrissey: Yeah – absolutely. So, there’s the question of Lifetime ISAs – particularly, following a Treasury Select Committee report, which raised concerns as to whether people really understood the product – and whether it was the right approach.

So, in its response, the Government said that it keeps all aspects of the Lifetime ISA under review. The question marks around its future are unhelpful – the worry is that investors might be concerned that it could be withdrawn, so that they wouldn’t consider using it, for instance.

Now, the LISA isn’t perfect, but it is vital that the Government doesn’t throw the baby out with the bathwater. It’s a really useful tool for saving for a first home – and, for some people, it can really help them when it comes to saving for retirement. Although, of course, for those who have access to a workplace pension, they need to consider that first – because they’ve got the employer contribution, for instance. And, for others, there’s lots of factors to consider before deciding whether to use a pension, a Lifetime ISA, or both. I mean, we believe that tweaks could make it even more valuable to people.

[2:58] Sarah Coles: So, you’ve picked my interest – what particular tweaks have you been talking about?

[3:01] Helen Morrissey: Indeed. Okay – so, the first one would be to cut the withdrawal penalty for early access. As it currently stands, if you need to access your LISA for anything other than retirement, first home, or very serious illness, you get hit with a penalty of 25%.

Now, we have called for that to be reduced to 20%. The reason for that is that, if you impose this 25% penalty, it not only removes the effect of the government bonus, but it also takes a chunk of people’s savings as well – which can act as a real disincentive to use a Lifetime ISA. So, by reducing that early-access penalty to 20%, this wouldn’t penalise savers, which would encourage take-up among groups like the self-employed, for example.

We also think removing the age of 40-limit on opening a Lifetime ISA would open the product up to those whose circumstances make the LISA right for them when they’ve passed the age limit. So, again – just as an example – many people might go self-employed after the age of 40 – so a bit later on in life – and, under the current circumstances, they wouldn’t be able to utilise a LISA. Whereas, if you increased that age, then more people might be able to.

[4:11] Sarah Coles: Yes – so, I guess, if you move into self-employment after you’ve hit 40, be too late to open it.

So, one of the things that people could consider doing is opening a Lifetime ISA at the age of 39 – while they’ve got the opportunity to, just to keep their options open.

[4:23] Helen Morrissey: Yeah – absolutely – because, once you’ve got that Lifetime ISA open, you do have the ability to pay into it and receive that government bonus right up until the age of 50 – so it is an option that you might wanna consider.

[4:36] Sarah Coles: So, obviously, we can’t go much further without bringing up your favourite subject of pensions!

So, every single time we come to Budget, pensions seem to be absolutely dominating – and they have been the present here too, haven’t they?

[4:45] Helen Morrissey: Oh, they absolutely have. There’s several rumours doing the rounds, basically.

So, the first one is that if the Chancellor might consider changes to pension tax relief, for instance. ‘Could we see a reduction in the amount of tax relief available to pension contributions?’ There’s been talk of a flat rate of, say, 30% - or maybe even 20%. That would, potentially, save money for the Government, but it could also be quite expensive and time-consuming to implement, which could cause challenges here.

Also worth saying that reducing the amount of tax relief available to higher an additional rate taxpayers could act as a disincentive for them to save into a pension – so that needs to be brought into account. And you may even see lower earners being put off until the rates change – they might think, ‘Oh, well, you know, if I could, potentially, get a 30% tax relief, I’ll put off my pension-saving until then.’ I’m not sure how likely that is to happen, but you just never know – you don’t want people pausing payments...

[5:42] Sarah Coles: Mm.

[5:42] Helen Morrissey: ...for longer than they need to.

[5:44] Sarah Coles: That’s always a worry – isn’t it? – because people don’t think about their pensions – unlike you, of course! Some people don’t think about their pensions every day – so, if they make a decision now, based on fears or speculation – or whatever it is – there’s a risk that they will still stick with whatever that decision is much further down the line than they should, and then they could end up worse off.

[6:00] Helen Morrissey: Yeah – absolutely. I mean, if you are maybe concerned about tax relief being cut – and you’re a higher or additional-rate taxpayer – one no-regrets-move, I would say, if you do – if you can afford it – is to make a SIPP or a pension contribution. So, that has the dual benefit of making less of your income subject to income tax – and you’re taking advantage of the rules as they currently stand.

Check if your employer operates a Salary Sacrifice Scheme, where you give a proportion of your salary and spend it on certain things, free of tax – including pensions. If not, you can still pay into a pension and receive tax relief at your highest marginal rate.

[6:38] Sarah Coles: But, of course, while the pension tax relief is a really big issue – something that really seems to dominate conversations is this question around pensions tax-free cash – ...

[6:46] Helen Morrissey: Yeah.

[6:47] Sarah Coles: ...which is a really difficult topic, isn’t it?

[6:49] Helen Morrissey: Absolutely – and this is something... that it’s been a real overhang from the previous Budget – people are very concerned about this.

So, there has been speculation that the Chancellor may look to trim back how much you can take in terms of tax-free cash – and the concern here is that this speculation encourages people to take their tax-free cash earlier than they, otherwise, would do – and then, once it’s removed, ‘What are you doing with it if you don’t have a plan for it – what happens to it then?’ ‘Taking that tax-free cash without a plan – what are you gonna do with it?’ can crate all kinds of issues.

So, pensions are hugely tax-efficient way to save for your future. Taking it out and put it elsewhere could, potentially, risk you being open to a whole host of taxes. I’m talking about capital gains, dividend tax that it wouldn’t be subject to in a pension.

You could also miss out on all-important investment growth that would not only give you a bigger pension, but also, potentially, a bigger slice of tax relief further down the line. If you were to take that money out – and put it in an easy-access account, for instance – there is also that chance that you’ll just fritter it away as well – just because it’s there – and that’s something that you may come to regret.

There’s also the issue of people taking the tax-free cash – and they just think that, if the change doesn’t happen, they can just reinvest it back into the SIPP. I can understand why people would think that, but they do need to be really careful about it because there’s every chance that you could fall foul of strict pension recycling rules – and that could see you clobbered with quite a substantial tax charge if you fall foul of those.

Other people thought that they could make a late instruction to take the tax-free cash and then reverse it if the decision didn’t happen. And this was something that happened in the run-up to the last Budget – they thought they could cancel it, but then HMRC – in the days after the last Budget – said that they would be unable to do so.

[8:43] Sarah Coles: And one of the things you said in there – and this does feel like a test ‘cause I hadn’t given you any warning I’m gonna ask you this question – ...

[8:48] Helen Morrissey: Mm-hm?

[8:48] Sarah Coles: ...but we talk, all the time, about pension recycling rules – and people who aren’t as excited about pensions as you might not be familiar with what that actually means. So, briefly, what does that mean?

[8:58] Helen Morrissey: The rules are trying prevent you from getting a double dose of tax relief by just taking it out and then reinvesting it. And so, what HMRC would be looking at is, ‘Are your contributions significantly higher than they have been in previous years – once you’ve taken that tax relief?’ ‘Have you reinvested a big proportion of that tax relief...

[9:19] Sarah Coles: Mm-hm.

[9:20] Helen Morrissey: ...back into your pension?’ And then, there’s a few other rules in there as well – and all of these rules – and that you’ve got to prove intention as well to recycle too. And, if all of these rules – you’re deemed to have breached them – then you will get a tax charge.

It’s complicated – ...

[9:35] Sarah Coles: Mm.

[9:35] Helen Morrissey: ...and it’s something that you should look to take financial advice if you are looking to reinvest back into your SIPP – you know, you really need to get financial advice – know what you’re doing – because you don’t wanna get one of these tax charges – it’s a nasty surprise that you could all do without.

[9:50] Sarah Coles: There have been other suggestions. So, there’s been something around Capital Gains Tax. It’s one of those things that does come up in conversation when there’s lots of talk about a wealth tax.

So, there’s been lots of conversations around whether there’s a blanket wealth tax – and, although it does exist elsewhere in the world, it would be a really major change. But, actually, in conversations around wealth taxes, the Government has said, ‘Well, we do actually have wealth taxes – and Capital Gains Tax is one of them’

So, I think, when we’re talking about what taxes could go up in an era where you don’t want to tax people’s earned incomes more – and hit working people very hard – then Capital Gains Tax comes into the frame.

Now, recent governments have hiked the tax and cut the annual tax-free allowance. So, those things are designed to make sure that you can protect less of it from tax – but, actually, wealthy investors could just decide to hoard assets until they die – because Capital Gains resets on death. So, if you sell something, make a big gain – and use more than your allowance – there’ll be a tax to pay. Whereas, if you just hang to it and wait... then, when you die, the people that you leave it to won’t have to pay Capital Gains Tax...

[10:51] Helen Morrisey: Mm-hm?

[10:51] Sarah Coles: ...on it – they’ll just be treated as ‘Owning it straightaway.’ So, it raises the question of whether the Government, actually, could look to tweak that rule. I think it’s one of those questions that people will have in their minds.

Now, rumours around possible changes... it could force people into rushing to sell up. So, they might think, ‘Oh, there might be changes to Capital Gains Tax – the bill might be onerous in the future – I should just deal with it now and then not worry about it.’ And, of course, that could backfire for people who could have realised the gain gradually and moved it into Stocks and Shares ISA – so they might, actually, needlessly, pay tax that they didn’t have to ever pay.

[11:22] Helen Morrissey: And so, what can people do, then?

[11:24] Sarah Coles: So, ISAs are, obviously, a really useful way to make sure that you’re not paying needless tax. So, if you look at taking advantage ahead of any changes while you can be certain of the allowances... So, Stocks and Shares ISAs will shelter you from any potential tweaks to things like Capital Gains Tax and to dividend tax... Well, if you’re making income from savings interest, for example, you can use a Cash ISA to protect, as much as possible, from income tax – and that, actually, will help if income tax thresholds are present.

So, one of the other things that’s been talked about is if frozen income tax thresholds could continue further – and that could mean more tax for savers – and so, obviously, inside a Cash ISA, you don’t have to worry about that.

[12:01] Helen Morrissey: And so, you mentioned there that awful freeze on income tax that has caused quite a big impact – hasn’t it? – since they were frozen a few years back. Could we see any change to those in this Budget, d’you think?

[12:12] Sarah Coles: Well, that’s one of the questions that people have been raising.

When you actually look at income taxes... because it’s such a big tax – because it collects so much money – there is always gonna be a question around, ‘Well, maybe the Government will do something with that.’

Now, it has pledged not to make changes, during this parliament, to income tax – so that has raised questions as whether we’ll get a freeze – and so that’s why that particular rumour is doing the rounds.

[12:32] Helen Morrissey: Mm-hm.

[12:33] Sarah Coles: A thinktank policy paper has floated the idea of putting 2 pence on income tax and taking 2 pence off National Insurance. The [s.l. ‘We-s’ 12:43] that they’re looking for there is that, for those working people – of lower than State Pension age – it, ‘Nah – nah’ – it would work out the same.

[12:50] Helen Morrissey: Mm-hm.

[12:50] Sarah Coles: You know, you’re taking with this tax and you’re adding to this tax. So, the idea is that you raise a bunch of money and it doesn’t affect the people that you promised not to affect.

So, the people if, obviously, would affect are people who are working over the State Pension age – and the people who are taking a pension over the State Pension age – because, if you are paying tax on that, you will then, obviously, see your tax bill go up – because income tax has gone up – and, because you don’t pay National Insurance, then you don’t get the benefit of the cuts.

So, there would be people who are affected, similarly – savers. So, obviously, if you are paying tax on your savings, you don’t pay National Insurance – so you don’t get the National Insurance savings, but you do pay income tax, so you would see a higher...

[13:23] Helen Morrissey: Yeah.

[13:23] Sarah Coles: ...income tax rate.

So, there’s loads of suggestions come out. Again, this is purely ‘A’ suggestion from the thinktank – and they’re in the business of making as many suggestions as possible and getting in the news. So, of course, we’re gonna get loads and loads of these sorts of things – but it is one of those things that is now entering the debate – as to whether income tax is going to have any kind of a tweak.

[13:42] Helen Morrissey: And so, we can’t have a chat about the Budget without talking about the whole issue of Inheritance Tax as well.

[13:49] Sarah Coles: Yes. So, Inheritance Tax... When you run the maths on what these things might cost – actually, when you look at the potential changes to Inheritance Tax... for people who have pretty chunky estates, it can make really huge differences. It’s vast quantities of cash based on what sounds like fairly small, innocuous changes.

So, there’s been a number of potential things floated. So, one of them is a potential cap on gifts that people can make during their lifetime – and the other one is the idea of changes to taper relief. So, the way that taper relief works is that, if you gave away more than your nil-rate band during your lifetime, then anything over that amount... if you die within seven years of giving it away – if it was a, potentially, exempt transfer – so nice, big lump sum. If you died within seven years, then the bit that’s over your allowance... that would be subject to slightly lower tax rates, depending on how long ago you’d given it away. Now, if they got rid of that, then it kind of introduce a new cliff edge to the system.

The impact of this speculation... there could be a couple of different things. So, one of them is that, if these changes are made, people would worry about giving gifts to their family. So, they would think, ‘Well, I’m actually gonna bust this – so I really need to worry about it.’ So, it might get people to hold back on gifts that can make a huge difference to their families. So, things like helping young people save for getting onto the property ladder – or whatever. These things could actually stop people in their tracks if they’ve...

[15:01] Helen Morrissey: Mm-hm.

[15:01] Sarah Coles: ...making plans for their lifetime.

On the other side of things, people might rush to give things away under the current system. And one of the big worries about when people are giving money away is that they just give away too much too soon.

[15:12] Helen Morrissey: Yes.

[15:12] Sarah Coles: So, if you’re driven by tax concerns and desperation, you might make decisions you come to regret later.

[15:18] Helen Morrissey: Mm-hm.

[15:18] Sarah Coles: It is difficult working out how much you can afford to give away – it’s not something that everyone is comfortable going through with it on their own. So, it is actually one of those areas, where it is worth thinking about whether or not you need to get advice.

Now, all of these things we’ve talked about – especially the nice pension recycling rules just being one example... All of these things – there may be issues where you think, ‘I really just don’t know what to do’ – and it does demonstrate there is real value in getting advice.

Now, obviously, ...

[15:43] Helen Morrissey: Absolutely.

[15:43] Sarah Coles: ...it comes with a cost – and it’s not right for everybody – but it is definitely worth considering. If you’re in this complicated position and you think, ‘I don’t know the right option’ – this is definitely one avenue you could look down.

[15:52] Helen Morrissey: Absolutely.

Thank you for that, Sarah. And, sticking to the Budget, but Budgets-past, I think – we’re gonna move onto the stat of the week.

So, one of the key moments on Budget Day is where the Chancellor holds the red box up in Downing Street – but, when Norman Lamont did so in the 1990s, all it had inside was a bottle of whisky, apparently. So, ‘Where was the Budget?’ – I’m gonna ask you.

[16:20] Sarah Coles: [Laughs]

[16:21] Helen Morrissey: A) Had he left it on his desk by accident? B) John Major was checking that there weren’t any jokes about him in it?

[16:30] Sarah Coles: [Laughs]

[16:30] Helen Morrissey: Or c) Did William Hague have it in a carrier bag?

What d’you think?

[16:35] Sarah Coles: Er, I think they all sound great – I hope they’re all true! But I’m gonna go with maybe John Major was checking for jokes – because, frankly, that man had so many jokes. I think it’s fair that he didn’t want any in the Budget, so I’m gonna go with that one.

[16:47] Helen Morrissey: Okay – I mean, it’s a good answer, but I don’t think it’s the right one.

[16:50] Sarah Coles: [Laughs]

[16:51] Helen Morrissey: The actual right answer was that William Hague had it in a carrier bag.

[16:56] Sarah Coles: So, why was William Hague on the scene?

[16:57] Helen Morrissey: He as an advisor to Norman Lamont, so he was, clearly, in charge of the Budget speech – and just had it in a carrier bag, by all accounts.

[17:07] Sarah Coles: Well, it’s always good to have your priorities completely set out – it’s whisky over Budget – I think that works best...

[17:12] Helen Morrissey: [Laughs]

[17:12] Sarah Coles: ...for anyone, really!

So, that’s all from us – but, before we go, we should say that this was recorded on 23^rd September 2025 and all information was correct at the time of recording.

[17:20] Helen Morrissey: Pension ISA and tax rules can change and benefits will depend on personal circumstances.

[17:26] Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you.

[17:30] Helen Morrissey: The Government offers a free, impartial service called Pension Wise to help you understand your retirement options.

[17:36] Sarah Coles: Investments rise and fall in value, so you could get back less than invested – and investment income varies and isn’t guaranteed.

So, all that’s left is for me to thank Helen Morrissey and our Producer, Elizabeth Hoston.

[17:45] Helen Morrissey: Thank you very much for listening – we’ll be back again soon. Goodbye!

[17:48] Sarah Coles: Goodbye!