As we wait with bated breath to see what financial rabbits Rachel Reeves pulls out of her Budget hat, many people are making provisions for scenarios that might never happen.
Investment experts, such as Vanguard’s head of Investment James Norton, caution against ‘kneejerk’ reactions to Budget speculation, warning that savers and investors ‘should not let talk cloud judgments’.
In the midst of all the uncertainty, though, there are some changes coming we already know about, and can work towards making the best of. So don’t, as Alice in Wonderland’s White Rabbit would put it, be late for a very important date. Wealth & Personal Finance examines how you can plan ahead.
As Alice in Wonderland’s White Rabbit would put it, don’t be late for a very important date
1. Stamp duty rises from March 31
What is happening?
The nil-rate threshold for stamp duty, which is the level below which you don’t pay tax on buying a property, is due to fall after a temporary rise.
What difference will it make?
The current nil rate threshold of £250,000 will return to the previous level of £125,000. The nil rate threshold for first-time buyers, currently £425,000, will go back to the previous figure of £300,000.
That means that from March 31, a first-time buyer purchasing a property worth £425,000 will pay £6,250 in stamp duty – at the moment they would pay nothing. Someone trading up from their first property to a £600,000 home would pay £20,000 in stamp duty, up from £17,500 today.
What can I do about it now?
Ensuring you complete property transactions before March 31 may be the only way to avoid the stamp duty uplift in most cases.
You can improve your chances by having documents ready as quickly as possible and ensuring you engage a trusted solicitor. Being ‘mortgage-ready’ with a high credit score will also help, but success will be partly down to luck.
2. Holiday let reliefs removed from April
What is happening?
Properties that are rented out short-term as a furnished holiday let (FHL) currently benefit from tax reliefs unavailable on other rented properties, but these benefits are set to end.
What difference will it make?
Simon Thomas, managing director of chartered accountancy firm Ridgefield Consulting, says that landlords could lose out by thousands of pounds in several ways.
A furnished holiday let landlord can currently deduct 100 per cent of mortgage interest from rental costs, which will drop to a 20 per cent credit.
On a let gaining £24,000 a year, with £10,000 of mortgage interest, following the change, they would pay £7,600 in tax rather than £5,600.
Those who want to invest in new furnished holiday lets will also face greater initial costs. Currently, full capital allowances can be claimed against purchase of necessary furnishings for FHLs such as beds, sofas and appliances.
Once the new rules come into place, landlords of FHLs will only be able to claim for the like-for-like replacements of such items, rather than initial purchase, which Mr Thomas calculates will result in an extra £2,000 of tax due if £5,000 is spent on new furnishings, assuming a 40 per cent tax rate.
Those who want to invest in new furnished holiday lets will also face greater initial costs
What can I do about it now?
It may be worth taking advice on what can be done before April, particularly with regard to claiming capital allowances. Some landlords may also benefit from putting a holiday let into a company structure rather than owning it themselves.
Others may want to sell up quickly or pass their property to a family member if it seems the right time to do so.
‘It would be sensible for anyone affected to consider their options now, plan ahead and make use of the tax reliefs currently available,’ says Ben Handley, tax partner at accountancy firm BDO.
3. Inheritance tax changes for non-doms
What is happening?
The ‘protected trust regime’, which means that assets in offshore trusts that are created by those who are not domiciled in the UK are protected from inheritance tax (IHT), is ending.
Trusts with offshore assets in them will not qualify for protection from IHT, no matter when they were created.
What difference will it make?
Part of the reason these trusts were valuable is that, even if non-domiciled individuals move back to the UK, the assets in them did not become part of their estate for IHT reasons.
What can I do about it?
This is an incredibly complex area, and we need to wait until the Budget to see more about non-dom rules in general, but in some cases becoming non-UK domiciled may be the most tax efficient decision. Making gifts out of the trust, provided you survive for seven years afterwards, is one way to cut the liability.
There will be more details on the transitional rules on trusts that have already been created in the Budget.
4. Price of booze rising from February
What is happening?
Alcohol duty is due to increase and a ‘temporary easement’ that reduced the price of wine is due to end on February 1.
What difference will it make?
Wines will be taxed based on their alcoholic strength. A consortium of wine sellers, including Laithwaite’s and Majestic, say this will push up the cost of 75 per cent of red wines, which tend to be higher in alcohol.
The Wine and Spirit Trade Association (WSTA) adds that the red tape surrounding the many different tax bands will also increase costs. Alcohol duty could also increase in the Budget – forecasts suggest it could rise by two to six per cent.
What can I do about it now?
Many of us need little excuse to buy wine in advance for Christmas to save on tax, but those looking at fine wine as an investment may also want to bear the coming increases in mind.
Fine wine investment could also be a way of avoiding the expected increase in Capital Gains Tax as it counts as a ‘wasting asset’, so is not subject to CGT on any gains.
However, wine investment is extremely volatile and you should not consider it unless you are prepared to lose your money.
5. Tax form: October 31 or January 31
What is happening?
Frozen tax thresholds and uplifts in wages and pensions mean that thousands more people will need to file a tax return this year.
The new state pension is worth £11,502 a year, thanks to the triple lock, which sees it rise every year by the highest of inflation, average wage growth or 2.5 per cent. It means that retirees who receive only the state pension need to earn another £1,067 before they are required to pay income tax.
Frozen tax thresholds and uplifts in wages and pensions mean that thousands more people will need to file a tax return this year
Meanwhile, high interest rates on bank deposits mean that more of us must pay tax on our savings, which may necessitate filling in a tax return.
Many with less complex tax affairs will also have received a ‘Simple Assessment’ telling them tax is due and that they must pay it. 560,000 Simple Assessments were sent out this year, 140,000 of them to pensioners.
Tax returns must be in by October 31 if you are filling in a paper copy or January 31 if you are filing online. If you have received a Simple Assessment letter, that tax is also due on January 31.
What can I do about it now?
If you think you could owe tax and it isn’t being collected via PAYE, you can go on to gov.uk and check if you need to complete a tax return at gov.uk/check-if-you-need-tax-return. If you do, ensure you send it back by the deadline and pay the necessary tax.
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