The waiting is nearly over – and the financial nightmare is about to begin.
This time next week, Chancellor of the Exchequer Rachel Reeves will launch the most brutal Budget tax raid in history.
As debilitating to our finances as the Vikings’ raids were to the British monasteries whose gold they stole more than 1,200 years ago. Indeed, so ferocious I am sure it would make the Vikings blush.
It will set in motion up to £35 billion of tax rises which will rattle our household finances like they’ve never been shaken before.
Although Ms Reeves talks a good story – an end to austerity and setting the country on course for a period of sustained economic growth – the jury is out.
A poll at the weekend indicated most people now think that the Conservatives would be better for their finances than Labour – the first time the Tories have been ahead on this issue since Boris Johnson was Prime Minister.
For one, I’d be amazed if Ms Reeves is successful with her grand plan.
Short term, there will be acute financial pain as we are all hit with a poisonous menu of higher taxes – and restrictions on our ability to create wealth, ensure a comfortable retirement, and pass on our money to loved ones.
Those in retirement will be stymied by the continued freezing of the personal allowance and income tax thresholds.
Meanwhile, businesses – the nation’s heartbeat – will be mired in a mix of expensive red tape and bigger tax bills, reducing their ability to make profits. Hardly a recipe for the economic growth that Ms Reeves talks about.
I would not be surprised if financial markets are rattled by next Wednesday’s savage dual assault on personal wealth and UK businesses. Longer term, I fear that Project Reeves will end in abject failure, bringing the country to its knees.
Scary? Yes. Do I hope I am wrong? Of course. So, as the Budget edges ever closer, are there any steps we can take in the next seven days to protect our finances from the Chancellor’s impending tax raid? Money Mail has come up with seven suggestions.
None involves you legging it for good to the inviting climes of Portugal or Spain, although I imagine some of you will be considering such an option post Budget.
Not all our ideas involve spending money – just redirecting it to more tax-friendly places.
I’d be amazed if you didn’t find at least one of the suggestions useful as you gird yourself for Ms Reeves’ coruscating Budget.
Stuff your Isa stocking
Currently, money held inside an Individual Savings Account is shielded from tax. This means there is no capital gains tax (CGT) on investment gains made within the tax-free wrapper.
Nor is there tax on income generated from cash inside the Isa – or on dividends from shares. Also, unlike a pension, Isa withdrawals are tax-free.
You should view your Isa as your own mini tax haven. Ahead of the Budget, it makes sense to protect as much of your family money inside it as possible.
Alongside a pension, it’s as sturdy a tax-shield as you will find to fend off Ms Reeves’ plundering.
The rules allow you to contribute up to £20,000 in the current tax year into an Isa.
So, if you’re married or in a civil partnership, that means £40,000 between you. Inside the tax wrapper, money can be invested, saved in a cash account, or split between the two – it’s your choice.
In recent days, it has been suggested that Ms Reeves might look to rein in Isas. She could do this by reducing the annual allowance or more controversially by putting a cap on the amount that individuals can hold in them (a figure of £500,000 has been mooted).
My view is that a cap would cause uproar, especially among those whose Isa wealth already exceeds this figure. More than 40,000 people currently have more than £500,000 sitting in Isas.
Jason Hollands, of wealth manager Evelyn Partners, says limiting Isas would be both unpopular and hard to implement quickly.
He adds: ‘The risk of this happening imminently is low. Yet no one should take Isas for granted. My advice to Money Mail readers is to make the most of them ahead of the Budget.’
Take capital gains tax action
It is a dead cert that a rise in CGT on profits from share disposals will be announced by the Chancellor next week. What we don’t know is the extent of the hike.
Some commentators initially thought CGT rates – currently 10 per cent and 20 per cent for basic and higher/additional rate taxpayers – would be aligned with income tax rates. But such a radical move seems to have been ruled out.
What is more likely is a ratcheting up in line with the rates levied on the sale of second homes or buy-to-let properties: respectively 18 per cent and 24 per cent.
These hikes could come in straightaway – former Chancellor George Osborne pulled such a move in his emergency Budget in June 2010.
If you are sitting on share gains, you have various options. First, you can do nothing and wait to see what CGT tricks Ms Reeves has up her sleeve on Wednesday.
Second, if realising gains is on your mind, you could use your annual £3,000 CGT exemption for this tax year to take tax-free profits up to this amount.
Third, you could take profits of more than £3,000, thereby ensuring that any taxable gain is subject to CGT of between 10 and 20 per cent.
‘After the Budget,’ says Nicholas Hyett, investment manager at Wealth Club, ‘you would almost certainly pay more tax.’
Mr Hollands says you will ‘need to hurry’ if you want to take share profits before the Budget. He adds: ‘There is just enough time if your shares are held with a broker or online platform’.
Use other anti-CGT hike measures
If you sell shares ahead of the Budget to avoid the harsher CGT regime coming our way, you don’t have to bank the profits or go on a mini spending spree.
Instead, you can buy back the shares – after at least 30 days. The benefit of this is that it resets the base cost of the shares at current market levels for the future calculation of CGT. In other words, it will help mitigate any future CGT bill.
Even better, you can repurchase the shares within your Isa or pension (self-invested personal pension), resulting in them being held in wrappers free of tax on both capital gains and dividends. These transactions are respectively known as Bed & Isa and Bed & Pension.
If CGT rates rise immediately after the Budget, investors using these two ‘Bed &’ options must ensure they have completed the disposal part of the process (the ‘Bed’) before Wednesday.
Move your assets between partners
Being married or in a civil partnership may not always be bliss, but it has tax advantages.
For example, it allows you to transfer shares to a spouse without triggering a tax charge.
By making such ‘interspousal transfers’, you give your combined investments a better chance of withstanding whatever Ms Reeves throws at us.
It enables you as a couple to utilise two CGT exemptions (£3,000 each) and two dividend allowances (£500 each) to fight off tax.
Transferring assets to the partner who is a lower rate taxpayer also means less tax to pay on future gains and dividends.
Your broker or investment platform should be able to do such transfers promptly.
The same can be done with savings, enabling both of you to use your respective personal savings allowances (£1,000 a year for basic-rate taxpayers, £500 for higher-rate taxpayers) to shield interest from tax.
Gifting to ease inheritance tax
Although the Government continues to benefit from higher inheritance tax (IHT) receipts – £4.3 billion for April to September this year, up more than 10 per cent on 2023 – Ms Reeves is not content. She wants more estates drawn into paying the tax.
Although her focus is likely to be on the IHT tax breaks that farmers and family businesses enjoy, the Chancellor could make it more difficult for people to make gifts to reduce the value of their estates when they die.
Sarah Coles, personal finance expert at wealth manager Hargreaves Lansdown, says parents and grandparents should consider making gifts ahead of the Budget – but only if they can afford them.
She says: ‘The simplest way to do this is to use the annual gifting exemption. This allows you to give away £3,000 in the current tax year free of IHT. You can give the gifts or money to one person or split it between several people.
‘If you didn’t use last year’s allowance, you can also use that – meaning a total of £6,000, or £12,000 per couple.’
Fill your car with fuel
With fuel duty likely to increase by up to 7 pence a litre in the Budget – it’s currently levied at 52.95 pence a litre – it will pay drivers yet to go electric to fill up with petrol or diesel ahead of Wednesday.
Sadly, those with plans to take a winter holiday break cannot escape the expected inflation-busting increase in air passenger duty by booking flights ahead of any announcement.
This is because it is the prevailing rate of tax at the date you fly – not when you book – that applies. Your airline will come after you for any increase that Ms Reeves pushes through on Wednesday.
Do nothing
Finally, for some readers, the best advice is to do nothing. As Ms Coles says: ‘When the fight-or-flight response kicks in, it is difficult to sit tight.
But if you have carefully considered your financial position and have already made all the sensible moves, doing nothing might be the best thing you can do right now.’
Until next Wednesday, sleep well (Nytol does the trick for me). Money Mail will then help you counter Ms Reeves’ Viking-like raid on our wealth, so the Vikings would blush no more.