The government is looking to generate extra cash for the coffers, so the Budget could end up heaping new tax burdens on the wealthy.
The super-rich might be contemplating life in a tax haven at the news, but there’s every chance that people with less significant chunks of wealth might feel they’re probably in the clear.
Unfortunately, it’s perfectly possible not to feel well off, and still be affected, depending on how you measure wealth.
This article isn’t personal advice. Pension and tax rules can change, and their benefits depend on your circumstances. Scottish tax rates and bands are also different. Investing for five or more years increases your chances of positive returns compared keeping cash in a savings account. But investments rise and fall in value so you could get back less than invested. If you’re not sure if an action is right for you, ask for financial advice.
Will there be a wealth tax?
As we go through our working lives, we tend to build our savings and investments ready for retirement.
As a result, our total wealth tends to peak in relatively early retirement – between 65 and 74. This isn’t wealth for the sake of it, it has a job to do, so new pensioners might be wealthier on paper than other age groups, without feeling rich.
It means the idea of having this wealth taxed can be alarming. Rumours that there could be a new tax on the sale of more valuable homes, would seem to target this group. It would seriously dent the sums that could be generated by downsizing.
This kind of rumour is worrying, but it’s vital to know that there’s no firm plans at all that it’s on the way, so there’s no need to rush into downsizing out of fear.
Are pensions set to be changed too?
Speculation about the future of pensions tax-free cash have also worried older people, concerned at a tax bill when they withdraw money from their pension.
It’s persuaded some to hurry and take their cash as soon as possible. The key is to not rush into taking money when you don’t need to.
You could end up paying tax on growth outside your pension which could dent your long-term returns.
The government will be aware of the risks of targeting people in this age bracket, because hitting them too hard will mean more people falling back on the state later in life.
Remember, before taking any decision with your pension, you can get free and impartial guidance from the government’s Pension Wise service if you're over 50.
They might opt to take a bigger slice from everyone as they grow their wealth instead. The new HL Savings & Resilience Barometer shows the top fifth of earners have median net household income of £83,427 a year, £761 left over at the end of the month, and save 10% of their household income, so the government may think these higher earners have room in their budgets to pay more tax.
Sign up to our weekly Editor's Choice email to make sure you don't miss out on the key changes from the Autumn Budget.
Tax relief rumours
Part of the government’s problem is that people earning more don’t necessarily have vast amounts of spare cash, especially if they have sizeable outgoings, like mortgages or growing utility bills.
Some would struggle to cover the extra costs without cutting back significantly on the kinds of spending and investment that help fuel the economy. In addition, taxes that try to focus on this group also run the risk of hitting typical savers and investors.
One rumour is that they could make cuts to pensions tax relief, possibly with a flat rate of relief, which would hit higher and additional rate taxpayers.
A few decades ago, that was only a small portion of taxpayers - because 93% of them paid basic rate tax. Now that percentage has dropped to 78%, so it risks hurting millions.
If you’re worried about potential reductions in pension tax relief, and have some spare cash, you could consider making the most of the system as it currently stands with an extra contribution to your pension.
Money paid into a pension, like a Self-Invested Personal Pension (SIPP), will grow without having to pay UK income or capital gains tax on it.
If you pay tax at a higher rate, you can benefit from higher rates of tax relief. Adding money to a pension could push people out of paying a higher rate of tax altogether.
How much you can pay in and the tax relief you get depends on your circumstances. Remember though, you can't usually access money in a pension until 55 (57 from 2028).
Capital gains tax in the crosshairs
There have also been plenty of rumours around capital gains tax (CGT).
The government might choose to hike the rate, but it then runs the risk that some people hang onto gains until they die, because capital gains reset to zero on death.
They might then accompany this with rules that mean capital gains tax is taxed after you die, which would be a real blow for those left behind. Dividend tax could be considered too – after all, income investors have already been hit with a succession of horrible cuts in the annual dividend allowance.
If you’re yet to use this year’s ISA allowance, it makes sense to consider a Stocks and Shares ISA, because any growth is free of both capital gains tax and UK dividend tax. To put your mind at rest, if you have the money available now, it might make sense to do so sooner rather than later while you know where you stand.
Plus if you’re worried about investment taxes, and have assets outside ISAs and pensions, you could use Share Exchange to sell your shares in an HL Fund and Share account and move the cash into a Self-Invested Personal Pension (SIPP), or Stocks and Shares ISA, and buy back the same shares again – all in one instruction.
Remember, your £3,000 CGT allowance might mean you have some tax to pay when you exchange shares but once that money is in your SIPP or ISA, it can grow free from UK income and capital gains tax.
Plus, you could get an extra boost by moving money into a pension thanks to the tax relief mentioned earlier.
Before using Share Exchange take any charges for the deal and the new account charges into consideration. And remember exchanged shares count towards your overall ISA and pension allowances.
Our advisers can help you with planning for the Budget. Understand how inheritance tax on pensions and changes to tax relief could impact you.