FIVE THINGS TO DO WITH YOUR MONEY AFTER LABOUR WIN - AND YOU NEED TO ACT NOW

Labour have rocketed to power and chancellor-to-be Rachel Reeves is busy sketching out her plans for the upcoming autumn Budget. Some commentators have speculated that it could mean tax rises to try to solve the country's financial hole.

Writing in the Express, Harvey Jones said this presents a narrow window for individuals to take advantage of current tax breaks that might be reduced or abolished soon. Labour has pledged not to hike income tax, national insurance, or VAT, and has no plans to reinstate the pensions lifetime allowance. However, all other areas are potentially on the table.

The Express spoke with Julia Rosenbloom, tax partner at Shakespeare Martineau, who's highlighted five key moves you should consider making with your finances now, to avoid the possibility of heavier taxation by Labour in the future. Rosenbloom praises ISAs as a "brilliant tax-efficient wrapper" and notes that the current allowance is quite substantial perhaps too much so for Labour's taste.

Make the most of your ISA:

The British public has accumulated a staggering £750 billion in ISAs, leading to a loss of £6.7 billion in tax revenue for the Treasury last year alone. The left-leaning Resolution Foundation has critiqued ISAs for doing little to encourage low-income individuals to save and has suggested imposing a cap on savings at £100,000.

Another potential move by Reeves could be to reduce the annual ISA allowance significantly, possibly to around £10,000. Rosenbloom's recommendation is clear: "ISA savers should make as big a contribution as possible in case benefits are reduced or removed."

Pay into pension:

When it comes to pensions, they're laden with perks. Tax relief on contributions can be 20, 40, or 45 percent, depending on one's tax bracket. Reeves might consider cutting this down to a flat rate of 20 or 25 percent across the board.

Savers are currently able to withdraw 25 percent of their pension pot tax-free from the age of 55, with subsequent withdrawals being subject to income tax. However, there's a possibility that Labour might scrap this tax-free cash perk entirely, as Martin Lewis has highlighted the potential risks.

In addition, any pension funds left untouched can be bequeathed to beneficiaries without incurring inheritance tax (IHT) upon death, although if the individual passes away after reaching 75, the recipients may have to pay income tax on the inherited amount. This particular tax advantage is also under threat.

There's also speculation that Labour could reduce the annual allowance the maximum sum you're allowed to contribute to your pension each year which currently stands at £60,000, potentially bringing it down to £40,000 or even less. Financial expert Rosenbloom suggests, "Higher rate and additional rate taxpayers should consider making pension contributions now to max out their tax relief."

Get Capital Gains in the bank:

Capital Gains Tax (CGT) applies to profits made from selling assets such as second homes, buy-to-let properties, valuable items like antiques and jewellery, cryptocurrencies, businesses, or shares not held within an ISA. Already, taxpayers are feeling the pinch as Jeremy Hunt has cut the annual CGT exempt amount from £12,300 to a mere £3,000.

At present, basic rate taxpayers are charged CGT at 10 percent, or 18 percent when it comes to selling a second property, while those on higher incomes face CGT rates of 20 percent and 28 percent respectively. Under potential Labour policies, CGT rates could be aligned with income tax bands, the Express said, meaning basic rate taxpayers would pay CGT at 20 percent on all sales, and higher and additional rate taxpayers could face CGT rates of 40 percent and 45 percent respectively. Rosenbloom warns that change is imminent and urges people to take swift action. Rosenbloom has a clear message for asset holders: "If you can, consider selling assets or even your business prior to the next Budget."

Inheritance Tax:

Even without any strategic changes by Reeves, IHT bills are on an upward trend. The frozen £325,000 nil-rate band since 2009 is increasingly ensnaring more families as the value of properties and shares inch upwards. Amid Labour's efforts to tackle wealth inequality, IHT presents a ripe target for a potential increased tax burden. There's speculation that Reeves may eliminate the £175,000 main residence allowance, which currently enables individuals to bequeath the value of their home to direct descendants without IHT implications.

An alternative measure could involve the abolition of gifting allowances, meaning all transfers of wealth could attract IHT liability. Rosenbloom suggests: "Your options are limited but it may be wise to make gifts before Budget rules change."

Review company structures:

Under a Labour rulership, there could be a significant hike in CGT, potentially increasing it to 40 percent or 45 percent, some have suggested. By contrast, company-held investments would attract a lower corporation tax rate of 25 percent, with Labour indicating they don't plan to raise this tax rate.

Additionally, companies enjoy exemptions from dividend taxation, offering another route for savings. With an eye on efficiency, Rosenbloom advises: "Forming a personal or family investment company can save tax. But it is complex so seek advice."

2024-07-05T08:35:53Z dg43tfdfdgfd