Five sensible last-minute steps you can take ahead of the Budget

The run-up to this year’s Budget has not brought the same storm of speculation as before, with chancellor John Healey keeping his plans for the public purse firmly under wraps. That is a welcome change: when rumours have been rife, some people have acted out of fear and made irreversible financial decisions, particularly over pension tax-free cash.

This time around, just under a quarter (23%) of people said they’re not worried about what the Budget may hold in store, according to recent research from AJ Bell.

And while we don’t know what the Budget holds in store, and it’s never a good idea to act purely from fear, it doesn’t mean we have to sit on our hands as the announcement looms ever closer. There are some sensible last-minute steps that you may be able to benefit from, regardless of what chancellor Healey announces from the despatch box.

In a recent survey, we asked people what they were planning to do, and some highly sensible steps made it to the top of the list. In a survey like this, people won’t always follow through, so in reality the numbers may well be different, but it is a useful demonstration of what’s on their to-do list.

Five sensible last-minute steps ahead of the Budget

1. Pay into a Stocks and shares ISA

By far the most popular action people were thinking of taking ahead of the Budget was to put their money into an ISA and it makes an awful lot of sense, particularly if you’re worried about capital gains tax or dividend tax, because investing through a Stocks and shares ISA will protect you from both.

A fifth (22%) of people said they either have put money into an ISA, or would consider doing so ahead of the Budget to protect themselves from tax and secure their allowances.

If you haven’t made a decision over where to invest, you don’t have to decide before you make the move. You can pay a lump sum in and then drip feed it into investments when you’re ready.

Making the most of your available allowances and sheltering your assets from tax in an ISA or pension will always be a sensible move, irrespective of what Healey announces at the Budget. Other popular moves included putting assets in a trust or gifting them, which could also prove tax efficient over the long term, especially when it comes to estate planning.

2. Move investments into a Stocks and shares ISA

If you have investments outside an ISA, you can realise gains of up to £3,000 each tax year without paying capital gains tax. If you have the allowance available, one of the most effective approaches is to use the Bed & ISA process to sell and buy the same assets in the ISA. That way you’re also protected from a potential future liability to capital gains tax and dividend tax. Making the move now will ensure you can take full advantage of the rules as they stand. 

3. Contribute to a pension

This was the second most common option people said they were considering ahead of the Budget. It’s a great way to cut a tax bill, and to build retirement resilience. It also means you can take advantage of tax relief at your highest marginal rate while you can be absolutely certain of the rules around tax relief.

A tenth (10%) of people said they have contributed more to a pension – or would consider doing so before the Budget.

AJ Bell has called on the chancellor to confirm that the rules around tax relief – and tax-free cash – will be locked in for long enough for people to plan their retirement with certainty. However, until he does, making the most of existing tax rules could make a great deal of sense.

As with any financial plans, your pension contributions need to make sense as part of your wider finances. They will be locked away until your minimum pension age (55, rising to 57 in 2028), so you need to balance the need to build for retirement with your spending needs today.

4. Consider sensible lifetime gifts

Some 8% of people said they would make gifts to friends and family ahead of the Budget, putting it in joint third place. Older people will already be more concerned about inheritance tax, given that pensions will be drawn into the net from next April. The fact that the government has been prepared to tinker with this tax will make some people worry that this may not be the last of the tweaks.

Giving lifetime gifts could help protect you from the impact of any changes, and you might choose to start the ball rolling ahead of the Budget. You can give large gifts, which will leave your estate for inheritance tax purposes after seven years. You also have a £3,000 annual gift allowance, you can give £250 away to any number of people, and there are gift allowances for weddings. In addition, you can give regular gifts from excess income, which leave your estate immediately for tax purposes.

The key is not to give away too much, too soon. If you’re not sure what you can afford to part with, it’s worth speaking to a financial adviser, who can assess your finances and model what you’re likely to need, and what you can give away.

If you have children or grandchildren, you could also consider putting money into their Junior ISAs or Junior SIPPs. It’s a useful way to make lifetime gifts, although these will be tied up until the children are adults, and able to make sensible decisions about how to make the most of these gifts.

5. Plan as a couple

There has been some discussion of the potential for a new wealth tax, and while there has been no indication that this is under consideration by the government, it has focused attention on how people hold assets as a family, and whether it makes sense to share the wealth. Even if there are no changes, some tweaks can help you save tax.

If you’re married or in a civil partnership, transferring assets between you won’t generally trigger a tax bill at the point of transfer. It means you can reduce how much each of you owns, and also means you can both take advantage of annual allowances for things like dividends and capital gains tax. Plus, you can make the most of two sets of annual pension and ISA allowances, so as much of your portfolio is protected from tax as possible.