Millions of people are being urged to take action after Rachel Reeves’ budget sparked what one expert has called a “tax tsunami”. The Government has confirmed £26bn worth of tax rises, hitting savers, workers and investors across the country.
But while these changes will impact families from every angle, financial experts say there are still ways to keep your money safe if you act early. Laura Suter, director of personal finance at AJ Bell, said the budget has left many people worried about their income and savings. He said: “The Chancellor passed a £26 billion tax increase on the public, with the vast majority of it landing at the feet of savers, investors and workers.”
He added: “While there is no doubt that tax increases are looming, there are smart ways to mitigate the impact of this tax tsunami. Taking smart steps before some of the changes take effect, as well as making the most of remaining tax breaks, will put you in a good financial position to weather this storm.”
Below are 9 ways to beat the budget “tax tsunami.”
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Rachel Reeves’ budget introduced what one expert called a ‘tax tsunami’ (Image: Getty)
Don’t ignore salary sacrifice
Many employees rely on salary sacrifice to increase their pension contributions. From April 2029, National Insurance savings will be capped at £2,000 a year, but Laura warned people not to panic.
She said: “Whatever you do, don’t stop your pension contributions. Even though National Insurance savings are limited, the money you pay in will still be free from income tax and workers can still enjoy pension tax relief up to the marginal rate of income tax.”
He said pension payments still reduce your “adjusted net income,” which could push people out of higher rate taxes or other costly tax traps.
eliminate frozen tax allowances
Income tax bands will now remain fixed until 2031, putting more people in higher tax brackets as wages rise.
Laura said: “More people will be pushed into the next tax bracket and as their wages rise, the tax hit on their income will be greater than what they would have otherwise had.”
They warned that key limits, including the £60,000 child benefit clawback and the £100,000 personal allowance withdrawal, create punitive tax rates of up to 62% after National Insurance is included.
His advice is simple: use pension contributions to bring income below that limit. She said: “There will be a little extra administration involved but it will still be worth it when you consider the potential tax savings on offer.”
Use the Lifetime ISA as long as you can
The government is planning to review the Lifetime ISA and introduce a simpler replacement, but nothing has changed yet.
Laura said: “People eligible for a Lifetime ISA can still open an account, pay up to £4,000 each tax year and get a 25% government bonus, adding up to £1,000 of free money per year.”
He added that the scheme is “pretty unbeatable” for first-time buyers and a strong option for self-employed people saving for retirement.
Protect your cash savings from tax
High interest rates This means millions of people will pay tax on their savings. This number is expected to reach 2.64 million this year.
Laura said the tax on savings will “increase by 2 percentage points” from April, taking the rate to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers.
She said: “It is more important than ever to make sure you are protecting your cash from tax.”
A Cash ISA is one of the simplest strategies, with savers still able to pay up to £20,000 into a pension until the allowance is cut for under-65s in 2027.
Chancellor imposes £26 billion tax rise on public (Image: Getty)
Prepare for the Dividend Tax Deduction
Dividend taxes have increased repeatedly in recent years, and they are rising again next April.
Laura said: “Dividend tax rates will rise again next April to 10.75% at the basic rate and 35.75% at the higher rate.”
she explained that HMRC It is estimated that 3.7 million people will pay dividend tax this year. Their advice is to use remaining ISA allowances, including “Bed and ISA”, to move investments into the tax-free realm before rates rise again.
Use gift allowances to cut inheritance tax
The inheritance tax threshold will remain constant until 2030-31, meaning more families will be forced to pay it.
Laura said: “Individuals can give IHT-free gifts of up to £3,000 per year. Couples can combine their allowances and give up to £6,000 tax-free annually.”
He also highlighted exemptions for gifts from weddings, small gifts and excess income, all of which can reduce future tax bills.
There are some smart ways to reduce the impact of the ‘tax tsunami’ (Image: Getty)
Consider Cash Options
The Cash ISA allowance for under-65s will fall from £20,000 to £12,000 in 2027.
Laura warned that cash savers should check whether they are “hoarding too much cash unnecessarily” and consider lower-risk investment options such as money market funds, bond funds, gilts or multi-asset portfolios.
Use every tax break available
Laura said many families are missing out on the financial assistance they deserve. She said: “Do some research and see if you are eligible for valuable government tax breaks or benefits.”
These include marriage allowance, tax-free child care, free child care hours and other supports.
He also reminded people that pensions are one of the most generous tax reliefs available. She said: “For a higher rate taxpayer, every £1 in their pension costs just 60p.”
Act fast on VCT before tax relief is cut
Venture capital trusts currently offer a 30% tax break on investments up to £200,000, but this will reduce to 20% from next April.
Laura said: “Anyone planning to invest in VCTs may want to consider doing so before April to receive higher tax relief before the rule changes.”
