How to protect YOUR budget savings, pensions and investments: Rachel Reeves’ £40bn tax raid

Rachel Reeves delivered the first Labor budget in 14 years this afternoon.

The Chancellor announced a wide range of budget tax increases, including capital gains tax and inheritance tax, and changes were also made to pensions.

Many people will wonder what this means for their money.

Making rash decisions is not recommended and experts urge people not to panic and do something they may later regret.

However, there are some simple things you can consider to protect some of your cash from tax grabs, especially since many of the changes won’t be implemented immediately.

We look at some of the changes Reeves announced and some of the adjustments you can make before they are implemented.

Use your tax-free allowances

Reeves announced major changes to the capital gains tax raid to boost the Treasury coffers, after repeatedly ruling out a rate hike during the election.

CGT applies to profits made from selling investments, second properties, business assets and personal possessions worth more than £6,000, and profits above the annual tax-free allowance of £3,000 all fall within the tax net.

The rate someone pays depends on whether they are a basic, higher or additional rate taxpayer, and the type of assets they are selling.

Basic rate taxpayers with taxable income less than £50,270 used to pay capital gains tax of 10 per cent, while higher and additional rate taxpayers paid 20 per cent.

That is, unless they were selling a second home or buy-to-let, when they faced capital gains tax rates of 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.

Now Reeves has aligned CGT on shares with property rates, meaning the lowest CGT rate will rise from 10 per cent to 18 per cent. The highest rate will increase to 24 percent.

These changes will take place immediately, meaning you will be limited in what you can do if you make profits starting today.

However, if you have used your tax-free allowance, you should be able to protect some of your savings.

The tax-free allowance remains unchanged, meaning you can make profits of up to £3,000 without paying tax.

Opening an Isa is another useful way to keep your savings or investments out of the tax net.

Fortunately, no changes have been made to the Isa’s annual or lifetime allowances, meaning savers should put their money in the tax-free wrapper wherever possible. You can save £20,000 per tax year in these accounts.

Gary Smith, financial planning partner at Evelyn Partners, said: “Higher CGT rates should focus everyone’s attention firstly on the importance of tax wrappers such as Isas and pensions, which protect investments from taxes on both capital gains and dividends, and secondly, on the use of annual taxes.” tax-exempt allowances.

Gift money to friends and family

In today’s speech, Rachel Reeves announced that the inheritance tax threshold would be frozen until 2030, extending it from the 2028 limit set by the previous Government.

If you are considering donating some of your savings to reduce inheritance taxMaybe it’s better to do it sooner rather than later.

But you shouldn’t necessarily worry unless the inheritance tax could become an issue for your beneficiaries.

It must be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to have to pay death tax.

And there is another important allowance, known as the nil residence rate band, which increases the threshold to a combined £1m if you have a partner, own property and intend to leave money to your direct descendants.

If you want to transfer money now to avoid possible taxes in the future, you can currently donate up to £3,000, which is included in your annual gift allowance, but you can also donate larger sums under a system called potentially exempt transfers (PET). .

These will be left out of your estate after seven years, as long as you do not die within that period, a rule put in place to prevent people from avoiding inheritance tax by giving away large sums of money in old age.

There is currently no limit on the amount you can donate as a PET, but it will only be exempt from inheritance tax if you survive for seven years after it is made.

Hargreaves Lansdown says more than one in seven of its clients said they had been prompted to give money to their family.

Labor did not extend the rules on PETs, but instead incorporated inherited pensions into people’s assets for the purposes of calculating inheritance tax.

Russell Miles, senior personal finance commentator at Charles Stanley, said: ‘Turning pension savings into an income stream and giving gifts of excess income preserves the benefits of IHT.

‘Taking lump sums of uncrystallized pensions and gifting them to the next generation also has the potential to get them out of the IHT trap, provided they live another seven years. But receiving financial advice is essential before making any decision.’

Find a home for your retired retirement savings

There had been speculation that Labor could make changes to some of the tax reliefs available for pensions, including a change to the ability to get 25 per cent tax-free.

Fortunately, Reeves and his team did nothing about it, but this didn’t stop a flood of savers looking to access their cash before the budget.

Those savers should now consider where to put that money so as not to lose its value due to inflation.

Mike Ambery, director of retirement savings at Standard Life, said: “When it comes to their pension itself, people should be aware that any further withdrawals will be taxed at their marginal tax rate and that future contributions to their pension will be subject to the Purchase of Money”. Annual allowance if they withdraw more than their tax-free cash, reducing the amount they can pay into their pension to £10,000 a year.

“This is a reasonable sum, but those wishing to make significant contributions to their pensions in the coming years should carefully examine the rules for accessing further pension savings and, ideally, speak to their pension provider or a financial adviser about their plans.”

Don’t panic

Reeves has made some broad changes that could bring more of your savings under tax.

But when it comes to making changes to your finances, the most important thing is to think long term and not make hasty decisions.

There are many changes coming into effect next April, giving you plenty of time to think about what you’d like to do with your cash.

Any investment should be made with a long-term view and, where possible, kept in a tax-free wrapper, such as an Isa or a pension.