Budget fears and rumours: tax, pensions and scary money mistakes

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Pension and tax rules can change, and benefits depend on personal circumstances.

Full podcast episode transcript

[0:10] Sarah Coles: Hello and welcome to the Switch Your Money On podcast with Hargreaves Lansdown. I’m Sarah Coles – Head of Personal Finance.

[0:15] Helen Morrissey: And I’m Helen Morrissey – Head of Retirement Analysis.

[0:18] Sarah Coles: So, we’re now firmly in the spooky season – so you can tell this because literally everything is shaped like a pumpkin or a ghost. I mean, it’s just... you can’t move for it in my house – but the financial world has actually got involved this year because, obviously, now we’re really worried about all sorts of things, including the future, and what might be coming in the Budget – and it’s really one of those times when a lot of people are getting spooked. So, we’ve gotta be very [inaudible 0:38] – sort of run through some of the things that are worrying people at the moment – and I’ll just explain a little bit more about where we are with all of them.

[0:44] Helen Morrissey: That’s a great idea – and, as you say, Sarah, let’s start with the Budget, and we did go into some detail about the Budget on the podcast – that was about a month ago – so that’s well worth revisiting, if any of our listeners have yet to listen to that one. But it is worth, quickly, catching up with the development since because a lot has gone on, hasn’t it, Sarah?

[1:04] Sarah Coles: Yes, there’ve been a lot of developments and a lot of rumours and speculation – so we actually thought we’d do a little bit of research into what was worrying people. ‘Cause the fear is that, once you’ve got all these rumours going around, people do start to get really alarmed. So, we asked what people’s biggest worries were – we did a survey of 2,000 people with Opinion in October and, by far and away, their biggest worry was Income Tax.

So, there is a concern amongst people that maybe the Income Tax rates will go up. So, there is some good news on this one because the Government pledged, in the manifesto, not to raise the tax. However, on the flipside, those tax thresholds for Income Tax are actually still frozen – they’re actually frozen ‘til 2028 – so it does mean that, regardless of what gets said in the Budget, those freezes remain in place, so pay rises will push more people over their thresholds.

There is also a chance that those thresholds could be frozen for longer. So, we saw this with the Inheritance Tax threshold that was expanded out to 2030. There is a chance that that could be expanded as well – ‘cause, actually, was handy stealth tax for the Government because they can say, ‘Well, we’ve definitely stuck – we haven’t increased the rate’ – but it does raise an awful lot of tax.

[2:07] Helen Morrissey: That’s really interesting – that Income Tax thing being spooky – and Halloween... it is the monster hiding under the bed – ...

[2:13] Sarah Coles: [Laughs]

[2:13] Helen Morrissey: ...you know, really is. What other issues did people have?

[2:16] Sarah Coles: So, the next really big concern for people was VAT – and, interestingly, this was another one that, in the manifesto, was promised it wasn’t going to change. But it is worth saying that, obviously, VAT is a proportion of what you spend on those things that are subject to VAT. And so, as prices rise – so as you get inflation – then, naturally, that tax rate will rise.

People are right to be a little worried that VAT amounts could change – but, actually, the rate... very unlikely to change at this stage.

[2:41] Helen Morrissey: Okay – and another one that I think tends to come up around this time as well is all things to do with Council Tax – was that a factor in the findings?

[2:50] Sarah Coles: Yes – so Council Tax does tend to be on that comes up when we ask people what they’re worried about in Budgets, but there’s been a lot of talk about Council Tax. Well, a lot of this is centred around whether there’s going to be maybe a complete change to Council Tax – or whether there’s gonna be extra Council Tax for various people.

What we do know is that, every year, Council Tax rises – so we tend to find an amount that the Government says is the maximum you can rise without having to do a referendum locally – and that’s round about 5% this year – so we could see similar sorts of rise. Of course, when you hear all this about different councils getting into financial difficulties, there is the concern that we could see that cap be a bit higher than it was this year.

So, obviously, after that, we come down to the old chestnut of Inheritance Tax – which I know you’re very excited about.

[3:31] Helen Morrissey: Yeah – so, in last year’s Budget, Inheritance Tax was big news because the Government announced the pension to be brought into people’s estates for Inheritance Tax purposes from April 2027.

Now, there are concerns that the Government might be coming back to revisit Inheritance Tax again in this Budget. So, there’s been various rumours, for instance, around maybe the use of lifetime cap being put on the amount of gifts that you can give away – ‘Is there gonna be any changes to the nil rate band?’ – for instance – there’s all kinds of things around that. And there’s a concern there that, if people think that Inheritance Tax is going to change... that they need to try and get ahead of that, and maybe try and start gifting now before changes come in – and there’s always that potential worry there – that people give away too much too early, and then they could leave themselves struggling a bit later on.

[4:22] Sarah Coles: That’s always a worry. It’s one of those things... that people want to help their families as much as possible – but, obviously, if you help them too much, they’re left short – then, actually, you’re not helping anybody at all.

So, one of the interesting things in this data is we pulled it apart depending on how much people earn – and we split it out into higher-rate taxpayers and basic-rate taxpayers. And one of the interesting differences was that higher-rate taxpayers are actually really concerned about pensions. Now, this is obviously really exciting for you ‘cause this is your big area.

So, their big, overriding concern was around their tax refund pension contributions. Can you explain a little bit about that?

[4:53] Helen Morrissey: Yeah – so, basically, pension tax relief is one of the big incentives to put money away for your future. So, your pension contributions will attract tax relief at your marginal rate. So, as it currently stands, if you’re a basic-rate taxpayer, that £100 contribution to your pension currently costs you 80 quid. If you are a higher-rate taxpayer, that £100 contribution costs you £60 because you are 40% taxpayer. If you’re an additional-rate, it costs you £55 because you pay tax at 45%. So, it’s an amazing incentive.

Now, what the rumours are suggesting is that the Government might look to revisit this great incentive – and actually bring in some kind of flat rate of tax relief. Now, they could look to maybe install 20% across the board, or they could look at doing something a little bit higher, which would be maybe 30%, for instance.

Now, if they were to do it at 30% - as a flat rate of tax relief – that would, potentially, be good news for basic-rate taxpayers because that £100 contribution... instead of costing them £80, it just cost them £70 instead. So, that’s good news for them – but, if you are a higher or additional-rate taxpayer – and you’re enjoying tax relief of 40% and 45%... the fact that it’s going down to 30% is gonna act as a disincentive for you and you’re not gonna be that happy about it.

[6:20] Sarah Coles: So, it’s worth saying, obviously, that change... it’s just a rumour at the moment – there’s...

[6:23] Helen Morrissey: Absolutely.

[6:23] Sarah Coles: ...nothing set in stone.

[6:24] Helen Morrissey: Yeah – in reality, could be a very complex rule to change – it is just a rumour, so people shouldn’t be overly concerned.

[6:32] Sarah Coles: We say that it’s something that higher-rate taxpayers are more worried about – and, I suppose, it’s only natural ‘cause they are the ones that would be particularly affected by it.

If somebody is thinking about whether or not this is going to change – and, if they are a higher-rate taxpayer – is there anything that they can do?

[6:45] Helen Morrissey: Yeah – if you are concerned about it, you might look to bring forward your pension contribution. Make the most of the system as it currently stands – so, if you were a higher-rate taxpayer, for instance – and you’re currently enjoying taxes of 40% and you’re concerned that it might be reduced to 30% or even 20%, you might look to bring forward your pension contribution. You might have been looking to add in a bit extra before tax year end, for instance... you might wanna bring that forward if you’ve got the spare cash to boost that contribution.

What I will say, though, is that, with pension contributions, you cannot access your pension until at least the age of 55 – that is going up to age 57 in the next few years.

[7:24] Sarah Coles: Yes – and, of course, when we talk about pensions... when you get into the specifics, pension and tax rules do change and benefits depend on personal circumstances. It’s also worth noting that, if you’re a Scottish taxpayer, rates and bands differ – so different rates may apply. And, if you’re over 50 and unclear about pensions, the Government offers a free, impartial service – Pensions Wise – to help you understand your retirement options.

One of the great things, obviously, about... you know, if you’re in a position to make those pension contributions, then it makes sense for your finances. It also helps if you’re worried about those Income Tax changes – but, of course, you’re getting tax relief at the highest marginal rate.

It’s worth, obviously, saying that the other cunning way to look at saving Income Tax is if you’ve got savings – and you’re paying tax on interest – then, if that money is in a Cash ISA, you are protected there.

But that’s not the only pension-worry, is it? Obviously, it’s something that rears its head a lot – and we do need to talk about is the pension tax-free-cash concerns.

[8:12] Helen Morrissey: Yeah – I mean, these haven’t really simmered down since the last Budget, to be honest with you. People are very concerned – Government is looking to restrict pension tax-free cash. There’s a lot of reports in the press about people looking to take their tax-free cash now, before the Budget happens. Some people do it as part of a plan – some people have plans in their retirement to maybe pay off a mortgage, do home renovations... fine – but what the concern is that people might look to grab that tax-free cash as part of a knee-jerk reaction to speculation, and that is something that they may come to regret. If you’re taking that money out of a really tax-efficient environment in a pension, ‘What are you gonna do with it?’ If you’re putting it in cash savings, then that could be the other way... by inflation, over the years – you know, like quite a poor rate of interest. You could put it in stocks and shares – or a Cash ISA – but, if you put it elsewhere, there’s a chance that it could be subject to taxes such as capital gains or dividend tax that it wouldn’t ordinarily be subject to.

So, there’s lots of things that you really need to think about, and you shouldn’t really be taking tax-free cash without some kind of plan for what you want to do with it.

And, given that I just mentioned Capital Gains Tax... I mean, what did you find from the research? Were there any interesting nuggets there around that particular tax – and people being worried?

[9:31] Sarah Coles: Yes – so this was actually something that people were worried about when they were higher-rate taxpayers. That’s not a huge surprise because, the more you earn, the more likely you are to invest – and so, therefore, it’s more likely to affect them.

So, Capital Gains Tax is something that you can pay on gains on your investment – if they’re outside an ISA or a pension – and so you get an annual allowance. You get to realise gains of £3,000 – but, after that, you can pay tax on it. So, it is something that people worry about – particularly because the rates on Capital Gains Tax have gone up – and the allowances have been cut.

So, if you are worried, it is really worth thinking about whether or not you can be putting that money into an ISA. You can do that through the Bed and ISA process – which is quite a straightforward process. You can realise gains up to your £3,000, then you can pop it into an ISA through that process – and that protects them from Capital Gains Tax and dividend tax in the future. So, that is something that is really worth considering.

[10:16] Helen Morrissey: And then, talk about scary things as well as we go a little bit further than the Budget – which is, obviously, looming quite soon... What about the wider economic background right now? I mean, there’s challenges there, to be fair, isn’t there?

[10:29] Sarah Coles: Yes – we’ve had some data which has concerned people. So, one of the big topics of conversation is around unemployment.

So, the unemployment rate was 4.8% in June to August – and that was up over both the quarters – so they measure it every quarter – and it was up over the year.

Now, it’s not at sky-high levels – so we’re not at the period of now being a crisis – but that trend really is starting to worry people – and, as jobs become less secure, all those things are underpinned by a sense of certainty and security, then start to weaken. So, one of the things that you do notice is that then brings weakness to the housing market, for example. So, kind of feeds into a lot of different aspects.

The other thing is that job vacancies have changed. So, job vacancies have fallen again – and what’s really noticeable is that they’ve fallen for 39 successive quarters. So, it really means that all the opportunities... so, if you lose your job, there is far less of a chance of getting a new job quickly.

So, we know that these vacancies have just fallen – and you remember back to, after the pandemic, we really saw vacancies soar. It’s not just that they’re down from those levels – it’s actually below the pre-pandemic level, so that is a really big change. Then, of course, there’s the question, beyond jobs, of economic growth – because, obviously, it’s the economic growth that drives companies, that drives jobs – and growth hasn’t been particularly stellar.

In fact, there has been fractional growth in August, but that followed a fractional shrinkage in July – that was actually a downgrade in the latest figures. So, we’re really seeing a sort of really sluggish economic picture – and that doesn’t bode well... this idea that maybe we can employ more people by having more jobs. But also, if you think about the Budget... that whole idea of economic growth producing more tax – and, therefore, closing the gap, so there’s less need for tax rises. So, I’m afraid it is very gloomy, looking ahead of the growth picture.

[12:09] Helen Morrissey: So, while we worry about that – on top of everything else – are there any other horrible zombies lurking in the background? – keeping with the Halloween theme!

[12:19] Sarah Coles: [Laughs] Yes – there’s a lot out there to be slightly fearful about – but there also are these zombies. And the joy of a zombie – as anyone who’s seen ‘Shaun of the Dead’ knows – is getting rid of a zombie. And so, it is definitely worth looking in your finances – see if there’s any zombies that you can oust – and, therefore, you can enter Halloween, thinking, ‘Oh, I’m a bright and shiny new place.’

So, we talk about these zombie products as things where companies don’t have to attract new customers. So, it tends to mean that the deals, the rate... everything else becomes less generous as they go along – because they’re not interested in trying to get new people in through the door. And, as a result, if you’re still sitting on one of these products, it means they get less and less generous as time goes on – which is why they call them ‘Zombies’ – ‘cause like sleepwalking to their demise, if you like. A very common one is Child Trust Funds.

So, if your child was born between September 2002 and January 2011, they’ll have been given a Child Trust Fund. So, the Government put money in on your behalf. Now, the rules changed over time – so I won’t go into all the boring details – but you will have had some money from the Government – and some people will have put some money in, themselves. The Government actually stopped giving them to newborns – and then Junior ISAs came onto the market – and, of course, this Child Trust Fund started dying a long, slow death.

So, nowadays, they tend to offer lower interest rates for the JISA – and Investment Child Trust Funds can be more expensive. So, of course, now you can get some JISAs which actually don’t have charges.

So, since 2015, you’ve actually been able to make the move. You can switch from a Child Trust Fund to a Junior ISA – so it is really well worth tracking yours down. You can use the Government Gateway to do that – finding out where this Child Trust Fund is and then looking at whether you should make a switch. But it’s not the only one. And, of course, there is always a pensions angle – right, Helen?! [Laughs]

[13:54] Helen Morrissey: There’s always... you are right – there’s always a pensions angle – and what I would say to that is, if you have older pensions – you know, older pension products... have maybe charged more than their modern counterparts. So, this is something that you really should explore if you’re looking to make a switch – and what you might find is that, if you have several different pensions out there – and you might be looking to bring them all together into one – to make it easier to manage – you do need to be careful of the charges there as well because, if you do have some of these older pensions, they might have quite expensive exit fees – for instance – that you need to be aware of. You don’t wanna get stung by that when you’re trying do the right thing and manage all of your pensions.

What’s also really important for you to think about when you’re looking to consolidate is to make sure that you’re not inadvertently missing out on some really key benefits that you can get with older pension products. So, one of the things that I’m thinking about there is guaranteed annuity rates. That would give you a higher income in retirement – and, if you were to look to transfer out, you could potentially miss out on some of these guaranteed annuity rates, so it always pays to check before you make the switch.

[15:04] Sarah Coles: Yeah – and then there’s one final zombie, which we should very briefly talk about – and that’s the Help to Buy ISA.

So, this came before the Lifetime ISA – and it closed to new entrants – although, if you’re in a Help to Buy ISA, you can still get bonuses until 2030.

So, basically, this was a product that enabled you to save in a savings product for buying a home. The best savings rates aren’t terribly exciting – so, the best... when I looked on 10^th October – for people who aren’t existing customers – was about 2.5% – so that’s not great compared to the Lifetime ISA, which is almost double.

There’s also lots of other bits and pieces within the rules and regulations, which aren’t brilliant for people who are trying to buy. So, the cap on the value of the property you can buy through the scheme is a bit of an issue. So, outside London, you can only buy a property with up to £250,000 – and the savings limit, after the first month, are also limited to £200 a month – so the government bonus is also capped at £3,000. So, there’s lots of ways in which it’s different from a Lifetime ISA, so it’s worth looking at whether you might be better off on a Lifetime ISA.

The issue is that, when you make the switch, you need to be careful how you do it. So, if you are making the switch from a Help to Buy ISA to a Lifetime ISA, you are using up that year’s LISA allowance. So, it’s actually worth taking a step back, doing the maths – working out how much you’ve got in there, how much you want to be putting in in the future, and just making sure that it’s the right move for you.

So, slaying your zombies is always great, but some of those zombies may just come back to bite you!

[16:20] Helen Morrissey: But the good news is that we can do some zombie-hunting this Halloween.

[16:24] Sarah Coles: Yes – so let’s stick with Halloween for the stat of the week.

So, there is an argument about whether it’s an American holiday. Now, I know I celebrated in the ‘70s, in Scotland, by doing trick-or-treating – so I like to think of it as a Scottish tradition.

Nevertheless, the US does things on another level – including buying outfits for pets – but, last Halloween, how much did they spend on these outfits?

Was it $100m, $500m, or $700m?

[16:49] Helen Morrissey: Wow – so I have been lucky enough to be in the US around Halloween on a couple of occasions, and I know they love Halloween. They really love Halloween – it’s amazing.

I mean, I wouldn’t say they go quite as overboard as $700m, so I’m gonna go $500m.

[17:05] Sarah Coles: Well, you’re underestimating their enthusiasm for Halloween – it’s actually $700m!

[17:10] Helen Morrissey: Wow!

[17:12] Sarah Coles: If you wondered where your money’s going, it turns out it’s gone just turning your... I don’t know – your dog into a pumpkin – or whatever it is they’re doing.

[17:18] Helen Morrissey: And, to think when I was a child, I ran around in a bin bag pretending to be a witch.

[17:21] Sarah Coles: [Laughs] D’you know, that’s really something I can actually picture! [Laughs]

So, that’s all from us for now – but, before we go, we should say this was recorded on 17^th October 2025, and all information was correct at the time of recording.

[17:34] Helen Morrissey: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you.

[17:39] Sarah Coles: Investments rise and fall in value – you could get back less than invested. Investment income varies and isn’t guaranteed.

[17:44] Helen Morrissey: Pension, ISA and tax rules can change, and benefits will depend on personal circumstances.

[17:50] Sarah Coles: So, all that’s left is for us to thank our Producer, Elizabeth Hotson.

[17:52] Helen Morrissey: And to thank you all very much for listening – we’ll be back again soon. Goodbye!

[17:57] Sarah Coles: Goodbye!