Seven ways to get your finances Budget-ready without making panic moves

Like Christmas, Budget speculation season has kicked off even earlier this year, with everything from wealth taxes to frozen tax thresholds being thrown into the mix.

When faced with the threat of higher taxes, people will always want to take steps to protect themselves. But if you do, it’s essential to focus on those you’ll be grateful for, whatever the Budget delivers when it is announced on 28 October.

We know from previous years just how much damage people can do to their finances if they feel forced into panicked decisions. Ahead of both the 2024 and 2025 Budgets, widespread speculation about possible reform to tax-free cash on pensions persuaded people to raid their pots. AJ Bell analysis of FCA data indicates that in 2024/25 an additional £10 billion may have been taken out of pensions for no reason other than panic.

If this money is withdrawn without a plan, there’s a real risk it comes out of a tax-efficient environment, misses out on investment growth, and is eroded by tax, inflation and incidental spending. It’s why AJ Bell has written to Chancellor John Healey, calling for a ‘Pensions Tax Lock’, and urging him to commit to long-term pension tax stability.

The fact that raiding your pensions may not be the best approach doesn’t mean you have to sit and wait to be knocked sideways by fiscal surprises, because there are still seven sure-fire steps you can take ahead of 28 October, which you’ll be grateful for whatever the Budget holds.

Protect existing investments

Wealth taxes have already been the subject of some speculation. During the Makerfield by-election, Andy Burnham said he would look in detail at Wes Streeting’s proposal to equalise capital gains tax with income tax, pushing that potential tax increase to the top of people’s minds.

Recent governments have demonstrated enthusiasm for moving investment tax thresholds and rates, and there’s nothing to stop them doing it again. If you have investments outside an ISA, and the available allowance this year, you can move investments into a Stocks and shares ISA using the Bed and ISA process to protect them from dividend and capital gains tax.

Protect new investments

If you’re starting out with investments, or topping them up, Stocks and shares ISA should be your first port of call, so you’re protected from tax from day one.

Investing for the first time can feel intimidating for all sorts of reasons. You are taking a new step with your savings, and it comes along with a lot of new decisions. But getting started isn’t as overwhelming as it seems on the surface.

Creating a checklist of what you need to consider when you invest can be a helpful step to lay out the process in front of you. Everyone’s criteria and needs will be a little different, but there’s a handful that apply to most people.

They include:

• Setting your goals (could be anything from getting on the housing ladder to paying for your kids’ education);
• Working out your timeline (a Stocks and shares ISA calculator can help);
• Considering your risk appetite (do you want stable slow returns or more volatile faster growth?);
• Working out what to invest in (be it tracker funds, actively-managed funds or individual stocks).

Protect your savings

Even if nothing else is announced in the Budget, the tax on savings interest will rise by two percentage points at the start of the new tax year, and the Cash ISA allowance will fall to £12,000 for people under the age of 65. There’s always the chance this isn’t the end of the bad news on savings taxes either.

It means that if you have some of your ISA allowance available, it’s worth moving savings into a Cash ISA, where the interest is completely protected from tax. Alternatively, if you don’t envisage needing to use a portion of your cash savings for longer than five years, you may want to consider investing them using a Stocks and shares ISA.

Explore the difference between saving and investing.

Protect yourself from a wealth tax

If the government was to consider a broader wealth tax and bring in some sort of levy on overall assets, it could focus people’s minds on how they hold assets as a family. Even if there are no changes, you can save an impressive amount of tax this way.

If you’re married or in a civil partnership, transferring them between you won’t trigger a tax bill. Not only will it cut how much one of you owns, but it 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.

Discover how to become a family of millionaires using ISAs and Junior ISAs.

If you have children, you could also consider investing for them through Junior ISAs or Junior SIPPs. Think carefully about what you can afford to give away, so you don’t regret losing those assets, but if gifts are affordable, they can save a big chunk of tax and protect you from the risk of an overall wealth tax too.

Consider lifetime gifts

Any Budget may hold the risk of changes to inheritance tax – whether it’s the cutting of allowances, the removal of exemptions or a new cap on gifts. No government will want to wade into this thorny area without careful consideration of a potential backlash, but even if they don’t, you could be grateful for the fact you used this opportunity to plan ahead.

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 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.

Protect against frozen tax thresholds by paying into a pension

Making extra pension contributions is a brilliant way to cut your income tax bill, while building your resilience later in life. It also helps protect you from the impact of frozen tax thresholds.

The chart shows the impact of the decision of successive chancellors to extend frozen tax thresholds on the higher rate tax threshold. First introduced by Rishi Sunak in 2021 in the wake of the Covid pandemic, and intended to run until 2026, the freeze was subsequently extended by Jeremy Hunt to 2028 and Rachel Reeves to 2031.

If a pay rise has pushed you over a frozen income tax threshold, upping pension contributions may bring you back down below it by reducing what’s called your adjusted net income.

It’s worth checking if your employer will match any additional contributions into your workplace pension, to super-charge your efforts. If not, you can consider other pension options, and whether you’d benefit from the extra choice and flexibility of a SIPP, which you can access from age 55 (rising to 57 in 2028).

A SIPP allows you to invest in a wide range of investments and you can change what you’re invested in at any time. While your employer won’t usually contribute to a SIPP, it can be used to supplement your retirement pot and can be particularly helpful if you’re self-employed.

Secure pension tax relief while you know where you stand

While the sensible approach would be for the government to commit to making no changes to tax relief, and to do it early, if there are no commitments forthcoming, you can take advantage of pension tax relief while you know where you stand.

Consider how much you can afford to pay into your pension and boost your contributions if it makes sense. If there ends up being no change, all you’ve done is improve your retirement finances.