Budget day – B Day – is upon us and households up and down the country will be nervously wondering what Chancellor of the Exchequer John Healey has in store for our finances and long-term wealth.
Will he follow in Rachel Reeves’ steps and hit us with yet another wave of painful taxes?
If so, I fear the UK economy, already creaking under £3trillion of debt and anaemic business activity, is heading for the proverbial knacker’s yard (that house I fell in love with in Tavira, Portugal, a couple of months ago, is looking increasingly inviting).
Or, given the ongoing cost-of-living crisis which will worsen in the coming months as inflation and energy bills rise, will Healey see the light, change tack and adopt a more emollient approach?
I do bloody hope so (excuse the language, blame it on Labour). It is the only way forward. The country is already mired in a quagmire of taxes – and that’s before a bucketload of further tax rises of Reeves’ pernicious-making kick-in between April next year and 2029.
To be blunt, we – households, businesses – cannot shoulder any more tax. Quite literally, we’re drowning in it.
John Healey’s Budget has households up and down the country nervously wondering what he has in store for finances and long-term wealth
Encouragingly, all the pre-Budget noise from Healey indicates that Wednesday will be gentler on both household and business finances than Reeves’ Budgets of 2024 and 2025 (which, combined, raised taxes by a whopping £75billion).
For a start, there has been no repeat performance of 2024 and 2025 when rumours about likely tax rises flew thick and fast ahead of the two Budgets. This speculation was driven in part by Treasury ‘kite-flying’: testing the public’s reaction to possible new taxes to see what reaction they would get.
Some of the rumoured tax grabs did end up in the Budget (for example, last year’s announcement on the curbing of salary sacrifice company pensions).
Others, such as a cut in the amount of tax-free cash that can be taken from a pension fund at age 55, ended up on Reeves’ cutting room floor in both 2024 and 2025, but not before tens of thousands of people panicked and withdrew tax-free cash they did not need.
This time around, the kites have been grounded. For example, there has been little said about pension tax-free cash being curtailed although, according to investing platform AJ Bell, such silence hasn’t stopped some investors from taking the money ahead of the Budget (just in case).
Indeed, Healey has commendably gone out of his way to quash rumours that are untrue. Earlier this month, he ruled out further hikes in capital gains tax (CGT) that many Labour MPs were keen for him to include in the Budget.
It means CGT, charged on profits made from selling assets such as shares or a second home, should remain at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.
An expected tax hit on banks will not be good news for homeowners and could push up mortgage costs to cover the cost of the Healey tax grab
Although not confirmed, it also looks as if Healey’s Budget will include more targeted financial help for families struggling with energy bills. This is likely to come via an uplift in the annual ‘Warm Home Discount’ payment of £150, available to those on certain means-tested benefits including pension credit.
The payment is automatic in England and Wales, but you may need to apply for it in Scotland. In Northern Ireland, the alternative ‘affordable warmth’ scheme provides assistance to low-income households.
In addition, some one million low-income pensioners look as if they could get a top up of their tax-free personal allowance (currently £12,570) to protect more of their money from income tax.
Planned fuel duty rises may also be scrapped, much to the relief of motorists. Currently levied on unleaded petrol at a (shocking) rate of 52.95p a litre, the duty is scheduled to increase to (an even more shocking) 55.95p at the start of next year – and then to (a scandalous) 57.95p in March.
With motorists facing petrol prices at four-year highs, Healey could (no, should) knock these increases on the head. Sadly, this may be countered by a tax rise on imported fuel, pushing petrol prices upwards. Crazy if true.
There is also likely to be some tax cuts for businesses to demonstrate that Healey is on their side more than Reeves ever was.
Yet they will do little to rectify the damage already done by the hike in National Insurance (NI) employer bills introduced by Reeves: job cuts and some companies going out of business.
The result is that the Budget will be more pragmatic than radical: Healey has been describing it to Treasury officials as a ‘breathing space Budget for households and businesses’.
Thank the Lord. But even if this is the case, we shouldn’t rejoice too loudly or be complacent.
Wednesday’s Budget may not be too painful in splendid isolation but it doesn’t need to be as far as Healey is concerned.
A heap of new taxes, higher taxes and frozen tax rate thresholds mean more tax revenues for Healey. More financial pain for us.
It’s these oncoming taxes we need to prepare for – and where possible mitigate. Here’s what you should be doing NOW to protect yourself from Labour’s grabbing hands. You can never start too early.
Rachel Reeves’ Budgets of 2024 and 2025, when combined, raised taxes by a whopping £75billion
Savings
The Budget is unlikely to include any new nasties on savings although I wouldn’t bet my house on it.
Two horribles are already in the pipeline and I think Healey knows that savers would explode if they got hit with any more.
The first affects those who like to save into tax-free cash Isas. From next April, only the over 65s will be able to use their full annual Isa allowance of £20,000 to save into one.
Anyone under 65 will only be permitted to put a maximum of £12,000 per tax year into a cash Isa although they will be able to use the rest of their allowance to invest in a stocks and shares Isa. Indeed, they could eschew cash Isas altogether if they just want to invest (the same goes for the over 65s).
The second affects those who have cash in ordinary savings accounts. From April, tax on savings interest will jump by two percentage points. This means new tax rates of 22, 42 and 47 per cent for basic, higher and additional rate taxpayers.
Currently, basic and higher rate taxpayers are able to shield up to £1,000 and £500 respectively of savings interest from tax via their annual personal savings allowance (additional rate taxpayers don’t get one).
Given the allowances have been set in stone since April 2016, Healey should be nudging them upwards. But there is as much chance of that happening on Wednesday as me running a four-minute mile. Indeed, there is far more chance of him cutting them – for example, axeing the allowance for higher rate taxpayers.
Similarly, he could (should) revoke the ridiculous changes to cash Isas. It’s something Money Mail has been calling for since early 2025 when we launched the ‘Hands Off Our Cash Isas campaign’. If he does see sense, I will do a Lady Godiva through the streets of my home town in Wokingham. But he won’t, so you’re safe.
If you’re a saver, I would use Budget week to assess whether your savings are working primarily for you – and not the taxman.
This means ensuring you don’t have savings tucked away in an account where interest is taxable – when, Isa allowance permitting, they could be moved into a tax-free cash Isa.
I also urge you to check whether all your savings accounts (Isas and non Isas) are paying competitive rates of interest. If they are not, transfer them to a provider giving you a better deal (our splendid sister website This is Money will help you find them).
If you’re married, or in a civil partnership, make certain you are both using your separate cash Isa and personal savings allowances.
For example, if savings are held in just your name, it might make sense to do an ‘inter-spousal’ transfer into an account set up by your partner. Such transfers are tax-free. You are then potentially using two personal savings allowances and two cash Isa allowances.
A joint savings account will divide the interest 50:50 for tax purposes with each of you being able to use your own personal savings allowance to protect a slice of your savings interest from tax provided you’re a basic or additional rate taxpayer.
Such rearrangement of your savings furniture will earn you more interest, increase your pot of tax-free cash, and reduce your tax bill. DO IT.
Mortgages
An expected Budget tax hit on banks will not be good news for homeowners. It will push up mortgage costs as banks seek to generate extra revenues to cover the cost of the Healey tax grab.
Mortgage rates are already rising in response to the expectation of future higher interest rates and persistent inflation.
So, for those homeowners either on a variable-rate loan or looking to remortgage as their current deal nears its end, seeking out a competitively priced fixed-rate mortgage makes best sense. The quicker the better.
Although five-year fixes are priced at around 6 per cent, deals at 5 per cent can be found for those prepared to shop around (use a mortgage broker).
The same goes for new homeowners. Opt for a fix with the best five-year rates again coming in at around 5 per cent.
In a volatile world, you don’t want your mortgage bill jumping up. Fixed payments provide certainty in an uncertain world.
> Mortgage calculator: Check how much a new fixed rate would cost you
Investments
For those with investments – I talk about pensions below – Healey is unlikely to inflict more tax on your portfolios.
He has already said CGT rates are not going up, while tax on dividends from shares was raised by two percentage points at the start of this tax year for basic and higher rate taxpayers: to 10.75 and 35.75 per cent respectively (the rate for additional rate taxpayers stayed at 39.35 per cent).
As an offering to wealth hating backbenchers, he could align dividend tax rates with income tax. But if he did, he would surely have to delay such a measure until the start of the new tax year in April.
As for the respective tax-free annual allowance for capital gains and dividends of £3,000 and £500, they have been cut to the bone in recent years (they were £6,000 and £1,000 three years ago). There is no meat left on the bone for further cuts.
The annual allowance for stocks and shares Isas will stay at £20,000 – cutting it would make no sense given Labour’s keenness to get people using Isas to invest rather than save.
The only possible change is mandating investors to use a proportion of their Isa allowance to invest in UK shares. But such a move – unlikely – would more likely come in next April at the earliest.
As with savings, NOW is the time to ensure your investments are fit for tax purpose.
This means using as much of your Isa allowance as you can afford to. Not just yours but get your spouse or civil partner to use theirs too.
If you have investments outside Isas, consider the use of (tax-free) inter-spousal transfers to divide them so that you can both take advantage of the annual tax-free CGT and dividend income allowances.
If one of you is a basic rate taxpayer and the other pays higher or additional rate tax, divide the investments so that any surplus income above the two annual dividend allowances is borne by the lower rate taxpayer.
Finally, use a process called bed and Isa to move shares you hold in an investment portfolio into the tax-free wrapper. In simple terms, you sell the shares and then buy them back inside the Isa.
If the profits from the initial share sale are less than £3,000 (the annual tax-free CGT allowance) and the amount invested back into your Isa does not take you over your £20,000 annual allowance, you have moved your shares into a tax-free zone free from taxes. All investing platforms offer this service – at a charge. USE IT.
> The best and cheapest investment platforms to grow your wealth
Pensions
In the run up to the Budget, little has been said about possible (horrible) tax changes to the pensions we fund for retirement: either cuts to the amount of tax-free cash we can take from age 55 (typically 25 per cent of our retirement pot subject to a cash sum limit of £268,275) or a reduction in the tax relief we get on contributions.
This wall of silence can be interpreted in various ways. Cynics could view it as a ‘success’ for Healey, giving him carte blanche to announce either a reduction in tax-free cash or tax relief.
Others could read it as evidence that cuts to the tax attractions of pensions are not on his Budget to do list.
We will find out on Wednesday, of course, but for most people with pensions still in accumulation mode, it should be business as usual. This means putting as much as you can into your pension as possible. It will ultimately play a big part in determining the financial comfort of your retirement. DON’T SKIMP.
For those in later life who have built big pension funds primarily for the purpose of passing down this wealth to family when they die, big changes come in next April.
Such unused money will then fall into the inheritance tax (IHT) net, exposing it potentially to 40 per cent tax. Even worse, if you die aged 75 or over, any withdrawals made by beneficiaries will ALSO be liable for income tax. A tax assault to end all tax assaults.
If you are using a pension fund in this way, NOW is the time to think about what you want to do with it:
- Leave it as it is, exposing beneficiaries to potentially big tax bills (not a good idea)
- Draw down some of the pension, especially any unused tax-free cash, and either spend it or use it to make gifts that take the money out of the IHT net (sensible). There are various gifting allowances such as the annual sum (£3,000) and small sums (£250 to as many people as you wish). You can also gift sums which become exempt from IHT if you then live for a further seven years. Explore ALL these options.
- Use the pension fund to buy an annuity. This gives you the opportunity to gift any surplus income (after your normal expenditure), again reducing IHT (sensible).
And finally
Review your household spending NOW to see if you are getting value for money on big-ticket expenses such as energy, broadband, your phone and essential insurances. If not, switch.
Oh, and don’t forget to prepare your household for when the Government’s obsession with Net Zero results in the lights going out.
Stock up on tinned cans, candles, torch batteries, power packs – and buy yourself a wind-up radio so you can rant and rave at the skewed presentation of the news on the Radio 4 Today programme. I find such ranting therapeutic.
B Day awaits!
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