There has been talk of a £20 billion ‘black hole’ in the public finances, which means tax rises are likely, although we don’t know what form these will take. Any changes, while possibly implemented as soon as they are announced, will not be applied retrospectively, so now is the perfect time to review any tax planning and possibly bring forward any plans you may have.

Below are some thoughts for your consideration:

Pension contributions

For the 2024/25 tax year, you are able to contribute up to £60,000 (gross) into a pension scheme, although this allowance may be reduced for any individuals whose income is in excess of £200,000. If you have held a pension scheme in previous years and did not fully utilise your allowance in any of the previous three tax years, any unused allowance is also available this year.

Contributions into personal pension plans currently attract basic rate tax relief at source, meaning that a gross contribution of £60,000 only requires a personal payment of £48,000. If you are a higher or additional rate taxpayer, any contributions increase the basic rate band, meaning that less tax is paid at higher rates, as well as having the effect of raising the threshold at which personal allowance is reduced and child benefit is clawed back.

It has been suggested that a more standardised approach to relief on pension contributions may be adopted. This may result in more benefit for standard rate taxpayers but a reduced benefit for higher/addition rate taxpayers.

If you are planning to make pension contributions during the current tax year, it may be advisable to bring these forward and make them before the Budget so that you benefit from the current relief available and have the funds grow in a tax-free environment sooner.

Pension lump sums

As things stand, you can generally take 25% of any pensions you have as a tax-free lump sum, up to a lifetime limit of £268,275.00. It has been suggested that Labour may look to lower this amount, either by reducing the lifetime limit or the percentage that is available to be withdrawn tax-free.

If you know you are planning to take advantage of this allowance in the current or future tax years, it would be advisable to do this before the Budget while the current allowances apply.

ISA allowance

Currently, the ISA allowance for 2024/25 is £20,000, which can be placed in any combination of cash or stocks and shares ISAs. The junior ISA limit is £9,000. Any income and capital gains received within your ISA are tax-free.

For those making monthly contributions into an ISA or planning to make a one-off contribution later in the tax year, it is advisable to bring any payments forward to before the Budget if you are able.

Capital Gains Tax (CGT)

One area that is rumoured to be under review is Capital Gains Tax (CGT). Currently everyone is eligible for an annual exemption, i.e., tax-free gains, of £3,000. CGT rates are lower than income tax rates. For capital disposals (not including residential property), the basic rate is taxed at 10% and the higher at 20%. Gains resulting from the sale of residential property are taxed at 18% and 24%, respectively. This compares to the basic rate of income tax, 20%, and the higher rate of 40%.

It has been rumoured that these may be increased, possibly to bring them in line with the rates of income tax. Therefore, it is worth considering:

• If you plan to realise assets that are subject to Capital Gains Tax to meet expenditure over the next few years, there could be merit in doing so before the Budget, to “bank” the current tax rates.
• Make sure you have used your allowances (however small); transferring shares into an ISA, for example, is a great way of utilising your annual exemption.
  

Business Asset Disposal Relief (BADR)

BADR reduces the tax rate on gains, up to a £1 million lifetime limit, to 10%. It is available to those selling all or part of a business, shares or securities, assets you have lent to a business, and some trustees.

If you are planning to dispose of all or part of an interest in a business, it would be advisable to do this before the Budget so that you can utilise this relief

Inheritance Tax (IHT)

Currently, each tax year, you are allowed to gift £3,000 without any Inheritance Tax (IHT) implications. Gifts of over £3,000 made to an individual are currently treated as potentially exempt transfers (PETs) and will only attract IHT where the donor dies within 7 years of making the gift.

Any unused allowance from the previous tax year is also carried forward, and if you did not make gifts of £3,000 in the last tax year, you could gift up to £6,000 in the current tax year with no IHT consequences.

Labour has committed to not raising numerous taxes. Tellingly, Inheritance Tax was not one of these. If you are planning to make gifts, it would be beneficial to do so before the Budget and any before possible changes take effect.

Conclusion

The tax tail should not wag the dog, but if you were considering some planning options, it would seem sensible to consider implementing this prior to the October Budget. If you would like to explore your options, please reach out to your usual contact at Rickard Luckin to discuss.