Thinking of acting before the Autumn Budget? Read this first

Budget speculation season is easing into its stride, with Andy Burnham coming under increasing pressure to discuss possible tax hikes. Anything other than flat-out denial is being seen as a potential sign of higher taxes.

As the weeks wear on, we can expect more of this, and there’s an increasing danger that people feel they need to take steps ‘just in case’ that they could sorely regret later. Here are seven moves you could come to regret.

1. Taking tax free cash

We know from recent Budgets that speculation around the future of the 25% tax-free pensions lump sum encourages more people to take it. The FCA’s data indicates that at the 2024 Budget alone savers pulled an additional £10 billion.

Some may be doing this well before they need it, so they risk spending it, and eroding their potential retirement income. DWP research from 2024 asked people what they had done with their tax-free cash. Among those who took just part of their tax-free cash, the most common use was to spend it on a one-off purchase. The Pensions Commission found that 14.6 million people aren’t saving enough for retirement, but that this rises by two million if people take their tax-free cash and spend it.

Even if they hang onto it until retirement, if it’s in savings it means missing out on the growth potential of investment. And if they have too much to shelter it from tax in ISAs, they risk paying anything from income tax on savings to capital gains tax and dividend tax on investments. It’s why the government should commit to a tax lock, guaranteeing stability on the two core tax incentives in-built in the pension system: Tax-free cash and pensions tax relief.

2. Realising capital gains above the allowance

If people are concerned that the capital gains tax rate may rise again, or the allowance may drop, they could rush into selling assets, reasoning that it’s better to pay the tax while they know where they stand. Unfortunately, unless they really need to sell in the immediate future, this means giving up the opportunity to realise gains gradually within annual allowances, which could protect them from paying any capital gains tax at all.

3. Making gifts you can’t afford

Making sensible lifetime gifts can be a lifeline for your family and cut a potential inheritance tax bill at the same time. However, if you panic and rush into making gifts ahead of the Budget out of fear, there’s a risk you give away more than you can afford or do it before you’re really ready. It could mean you run out of money in retirement and need to ask your family for support or make horrible spending compromises.

4. Trying to avoid IHT

Fear can make people vulnerable to schemes that are marketed as clever ways to avoid inheritance tax (IHT). This includes trust-based schemes that people use in the hope of taking their property out of their estate for inheritance tax purposes. These can be complex, expensive, and they can fail if HMRC decides they have been used to avoid tax, so you gain nothing from all the hassle and expense.

5. Making significant property decisions

Andy Burnham has stamped out much of the speculation around property taxes by saying he won’t enter into wholesale reform of either stamp duty or council tax in this Budget. However, concerns over potential future changes could influence major property decisions. If you always planned to downsize around this stage in life, sell a second property or give property to family, then there’s no major loss if you decide to stop putting it off on the grounds it’s not going to get any cheaper. However, if you feel forced into doing something you don’t want to, or doing it before you otherwise would, you could end up in a property that makes you unhappy because of a tax change that never materialised.

6. Opting for tax-efficient vehicles without thinking about the underlying investment

There are some brilliantly tax-efficient vehicles beyond Stocks and shares ISAs and pensions, including Venture Capital Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes. They come with significant tax benefits, but they also involve a high level of risk. If you let the tax tail wag the investment dog it could lead you into taking far more risk than is suitable for your circumstances.

7. Feeling frozen by indecision

There’s a real risk that as talk of potential tax rises continues, you worry that money might be tight in the coming months. It can persuade you to pause sensible long-term investment and pension plans, just in case. But if you just sit on cash, you’ll pay a price for this, missing out on potential investment returns and on key pension contributions. The key to regular investments is the regularity, so think long and hard before pausing your plans based on a fear of something that may never happen.