Rachel Reeves will present her next Budget next week (Image: Getty)
A finance expert has issued five bits of crucial insight before Rachel Reeves presents her next Budget on November 26. Alex Pugh, Chartered Financial Planner at wealth management firm Saltus, predicts that the Budget « has the ability to have significant consequences ».
She adds that, if the Government looks to raise additional revenue from property, pensions, and gifting rules all at once, there is a risk that there will be huge impacts on both high earners, as well as many people who might be regarded as “Middle England”.
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The specialist thinks the Chancellor could implement freezes across the tax system and changes to CGT on primary homes and inheritance tax (IHT), which may include potentially scrapping gifts out of income altogether.
She believes that adding national insurance to rental income is also on the table, which would create « an extra burden for landlords » after the Renters’ Rights Bill received Royal Assent, as well as increasing the state pension age sooner than planned.
Brits are facing the prospect of fiscal changes in the Budget (Image: Getty)
‘Stealth taxes’
Ms Pugh said: « Freezing thresholds is an easy win for the Treasury because it raises revenue without the political fallout of a headline tax hike. But make no mistake – it’s still a tax rise, and it quietly drags millions more into the net.
« The personal allowance has been stuck at £12,570 for years, and with the state pension rising under the triple lock, we’re approaching the point where that pension alone could breach that limit.
« For many retirees who’ve never paid tax on their state pension before, that will feel like a stealth raid on their income.
“For those still working, it means pay rises don’t stretch as far, with more of each increase swallowed by tax, while for those reducing their hours as they approach retirement, the frozen thresholds risk eroding the benefit of scaling back, making planning around work, pensions and savings more complex without proper advice. »
She then advised deploying « trusted retirement planning and pension planning with a qualified financial planner », which « can make a material difference ».
Capital gains tax
Ms Pugh said: « There’s been a lot of talk about wealth taxes, but in reality they’re almost impossible to implement.
« Instead, the Chancellor may look at capital gains, both in terms of the current exemption on primary residences and the ‘die on death rules’.
“Removing or limiting the exemption on main residences would be seismic, potentially locking older homeowners into houses they no longer need because they can’t afford the tax hit to sell and downsize, which would have a huge knock-on effect on the whole market.
“The other possibility is scrapping the rule that resets capital gains on death, which currently allows families to inherit property without paying tax on historic gains. For example, if a home was bought for £100,000 and is worth £500,000 at death, the heirs inherit it at the £500,000 value and only pay CGT on any future growth.
« If that rebasing were removed, families could suddenly find themselves liable for significant capital gains tax on assets passed down to them – a huge shift in how inheritance is taxed in practice.”
Inheritance tax
Ms Pugh said: « It is possible that the government tightens inheritance tax rules further, particularly around gifting.
« At the moment, families have two powerful tools: the ‘gifts out of income’ exemption, which allows you to make regular gifts without any limit as long as they come from surplus income, and the seven-year rule, which exempts larger lump-sum gifts if you survive for seven years after making them.
“If either of these were removed – or restricted – it would be hugely disruptive. For example, if the government were to remove the income exemption altogether or even introduce a lifetime cap on how much you can give away tax-free, it would be really restrictive. »
She then warned: « Currently, someone who started gifting in their 50s could use all these rules to pass on significant wealth over their lifetime. If you replace that with a single aggregate cap, people will run out of room very quickly.
« It would force families to completely rethink their long-term wealth transfer strategies and would likely result in more estates being caught by inheritance tax. »
National insurance
Ms Pugh said: « One of the more prominent measures being talked about is applying National Insurance contributions to rental income.
« At the moment, landlords only pay income tax on those earnings, but adding NI would represent a significant extra burden.
“It’s clearly being framed as a way to target the ‘more affluent’, but in practice it would hit a wide range of landlords – many of whom rely on rental income for retirement or to offset rising mortgage costs. This would also affect retirement planning for many clients who use property as part of their pension strategy. »
Tenants are likely to feel the impact too, she highlighted, as landlords « pass on at least some of the extra costs through higher rents ».
Ms Pugh added: « Landlords have already been squeezed by the withdrawal of mortgage interest relief and other reforms, so layering NI on top would feel like yet another blow. It would be deeply unpopular, but I can see why it’s being floated as a potential revenue-raiser. »
Ms Pugh expects ‘tougher pension rules’ (Image: Getty)
State pensions
Ms Pugh said: « I think there’s a real chance we’ll see tougher pension rules in the next Budget. One of the ways the government could look to raise additional revenue would be to increase the number of National Insurance contributions required to qualify for a full state pension.
“At the moment, people need 35 qualifying years, but even a small increase to 36 or 37 years would shift costs onto future retirees without the immediate shock of an outright tax rise. It makes sense from a policy perspective because the state pension age is already rising in line with longevity – so asking people to work and contribute for a few extra years aligns with that trend.
“While it would still impact retirement planning, it’s likely to be less politically damaging than freezing allowances or introducing new taxes, and it’s a relatively straightforward lever for the Treasury to pull. »
