With the Autumn Budget less than a week away, speculation is increasing over potential changes to ISAs, pensions, and tax thresholds. Matt Hodge, Wealth Management partner at Buzzacott, shares his thoughts on what savers and investors might expect, and how to prepare.

ISA Allowances

There’s growing speculation that the Government could reduce the annual ISA allowance from £20,000 to £10,000 or £12,000, particularly for cash ISAs.

“A cut to the cash ISA limit would be disappointing for cautious savers,” says Hodge. “If you’ve already used your personal savings allowance, the interest on any money not able to be contributed to your ISA could remain taxable.”

Based on a 4% interest rate, the change could mean an extra £64 in tax for basic-rate taxpayers, rising to £128 for higher-rate and £144 for additional-rate taxpayers each year, and double that for couples.

“The worry is that savers could feel pushed into stocks and shares ISAs just to retain tax efficiency, even if that means taking on more risk than they’re comfortable with,” Hodge adds.

Pensions

A reduction in the tax-free lump sum from pensions has been a concern for many (currently 25% of the total fund up to £268,275) and, whilst there have been suggestions this could be reduced to £100,000, more recent speculation is that this is unlikely to be touched.

“In assuming that a reduction in tax-free cash won’t form part of the budget does not mean no action should be taken, it may well still be prudent to do so if part of an existing plan. It is important however not to make rash decisions that may affect long-term plans based on speculation.

There are also concerns about the possible removal of salary sacrifice schemes, which allow employees and employers to save on National Insurance through pension contributions.

“These arrangements are a win-win - employees benefit from extra employer contributions, and employers save on NICs,” says Hodge. “If they go, both sides lose out, and it’s another quiet tax rise in disguise.”

Income Tax

Frozen income tax thresholds are continuing to drag more people into higher bands.

“People are getting pay rises that aren’t making them any better off,” says Hodge. “With thresholds frozen, those rises potentially push more of their income into higher tax bands.”

Recent signals suggest that the government has backed down on plans to raise income tax. Instead, the focus is shifting to freezing thresholds for longer, which effectively increases tax burdens via fiscal drag rather than by rate hikes.

Capital Gains Tax

Capital Gains Tax (CGT) rates rose earlier this year - to 18% for basic-rate and 24% for higher/additional-rate taxpayers - and further increases could be on the way.

“There’s talk of aligning CGT more closely with income tax rates,” says Hodge. “That could take higher-rate CGT up to 40%, which would be a major shift.”

On a £100,000 gain, the tax bill could jump from £23,280 to £38,800, adding £15,520 in extra tax. “That kind of increase would make investors think twice before selling assets,” he adds. “It would also hit business owners looking to realise value from their companies.”

Inheritance Tax

Finally, the long-standing ‘seven-year rule’ on gifts could be extended to 10 or even 12 years, keeping more assets within estates for longer.

“Extending the seven-year rule would make estate planning much harder,” says Hodge. “It would mean people need to think about gifting earlier - potentially a decade before they expect those gifts to fall outside their estate.”

In summary, Hodge says the overall direction seems clear:

“The Government is looking for ways to raise revenue without announcing headline tax increases,” he concludes. “For savers, investors, and retirees, the best approach right now is to review your financial plan and make sure you’re making full use of current allowances before any changes come in.”

Buzzacott Financial Planning is authorised and regulated by the Financial Conduct Authority. This article has been prepared to keep readers abreast of current developments. Professional advice should be taken in light of your circumstances before any action is taken or refrained from. The value of investments, and the income from them, may go down as well as up and investors may not get back the amount originally invested.