Finance knowledgeable warns of mistake ‘you could remorse’ forward of John Healey’s Autumn Budget
Chancellor John Healey will announce his first Autumn Budget later this month with areas including pensions, Inheritance Tax and fuel duty all in the spotlight
Prime Minister Andy Burnham and Chancellor of the Exchequer John Healey at the Labour Party Conference(Image: Getty)
With less than two weeks to go until the Autumn Budget, attention is turning to Chancellor John Healey as he prepares to make the first major financial decisions of Prime Minister Andy Burnham ’s tenure. Following Burnham’s speech at the Labour Party conference in September, speculation about what the Budget might contain has intensified, with a wide range of potential measures still on the table.
This year’s budget falls on Wednesday, October 28 when the chancellor will set out the Labour party’s financial plans. Areas already in the spotlight include pensions, Inheritance Tax and fuel duty along with “fiscal drag” where frozen income tax and personal thresholds have seen more people pulled into paying tax.
This has led one finance expert to share their thoughts on what people can actually do in the lead-up to the announcements to prepare for potential big changes. Antonia Medlicott, Founder and Managing Director of financial education specialists Investing Insiders , has shared three actions that she says people should be considering ahead of the Budget, as well as one major mistake to avoid.
Factor changing fuel costs into your budget
“Fuel costs have been rising rapidly in recent weeks, with no signs of slowing down anytime soon,” Antonia explains. “And the pressure on drivers is set to increase over the coming months as the temporary fuel duty cut is phased out, with duty due to rise by 2p a litre in January and a further 2p in March.
“Given the squeeze British householders are already feeling, I wouldn’t be surprised if the Chancellor freezes fuel duty for longer to help keep the currently skyrocketing prices as low as possible. However, if nothing is announced, people need to be prepared for the sudden spike in fuel prices we’ll experience in January.”
Consider moving your stock portfolio into an ISA
The expert says: “Capital Gains Tax, which is charged on profits made from selling certain assets, is among the most widely discussed potential targets in the upcoming Budget. Currently, most people have a £3,000 allowance before they need to start paying CGT, with profit past this point taxed at either 18 or 24 per cent depending on your tax bracket.”
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She adds: “The upcoming Budget could see the allowance reduced or scrapped completely. Alternatively, the Chancellor could increase rates of CGT, which would affect investors who hold shares and other investments outside an ISA.
“If you haven’t used your full ISA allowance, it may be worth considering whether you could benefit from moving some of your investments into a Stocks and Shares ISA. Any gains made on investments held within the ISA are free from CGT, helping to protect future growth from tax.
“You generally can’t transfer existing shares directly into an ISA. But you may be able to sell investments held outside an ISA and buy them back within one, a process known as a ‘Bed and ISA’. Of course, selling can trigger a CGT bill if your total taxable gains exceed the available annual allowance. So before making the switch, consider all the potential tax implications, dealing costs and how you’d feel about potential market movements while you’re out of the market.”
Be as familiar as possible with your inheritance plans
Antonia says while people shouldn’t make any quick changes there are some things to consider. She advises: We’re already seeing a major change to inheritance tax being introduced next year when unused pensions fall under IHT rules for the first time, but that doesn’t mean that we won’t see any further changes at the end of the month.”
She adds: “There are rumours that a lifetime cap on tax-free gifts and new levies could help fund the newly announced National Care Service, as IHT is a quick way to raise capital. Whilst you shouldn’t change any of your inheritance plans yet, I’d say now is a good time to get familiar with the ins and outs of them.”
Avoid making quick decisions
“The biggest piece of advice that I can give anyone in the lead-up to a Budget, especially one as potentially impactful as this one, is to not make any rash decisions that you may come to regret, based solely on rumours, speculation, and panic, three things which do not have a place in a sound financial strategy.
“We saw this last year, when people were convinced that the government was going to crack down on tax-free pension withdrawals, leading thousands to take out massive amounts of cash from their pension pots. When this never materialised, they were left with cash sitting in their current accounts instead of still growing within their pensions, forcing them to deposit it into savings accounts where they were not only potentially subject to tax, but also earning far less interest than they could have been.
“Until it’s formally announced, nothing is certain to be in the Budget. Be prepared to take action, but do not take any drastic steps until we know what’s changing. Get familiar with your finances and understand what changes could actually affect you, and remember, it’s rare for policies to come into effect the day of the Budget. Generally, the government gives people time to make changes before the law changes.”
