Barclays is urging people not to make any “hasty decisions” ahead of the Autumn Budget as certain moves made now could “backfire”.
Lee Platt, wealth planner at Barclays Private Bank and Wealth Management, said: “There are many different possible changes that have been mooted, but until the announcement on October 30, these are all theoretical scenarios – and knee-jerk reactions should be avoided.”
Rumours have been stirring about changes to pension tax relief and inheritance tax. Some speculate that Chancellor Rachel Reeves is planning to reduce the tax-free pensions withdrawal allowance (which is usually 25 percent of the pot to a cap of £268,275). Others suggest she may make pensions inheritance taxable (IHT) assets.
Mr Platt said: “Those who are in a position to access their tax-free lump sum may now be considering doing so before the Budget, ahead of any changes. However, in our view, this isn’t necessary.
“Even if changes are announced, they are unlikely to take effect straight away, so there will be time after the Budget to make an informed decision as to the best course of action.”
Mr Platt added: “Ultimately, unless plans are in motion already, deciding to take a course of action in one area could risk another, and people could end up in a worse position.”
Sharing an example of the potential negative impact that acting ahead of the Budget could have due to intricate policies, Mr Platt said: “If pensions were to be brought back into the IHT net, how this change is implemented will impact the outcome.
For example, pensions that haven’t been touched before retirement (uncrystallised) might avoid IHT, but funds drawn in retirement (crystallised) could be taxed.
A pension worth £400,000 could provide £100,000 tax-free, with the remaining £300,000 moved into drawdown. However, the £300,000 could then be subject to IHT, along with the £100,000 if included in the estate. Without these actions, Mr Platt suggested the entire pension could have stayed IHT-free, potentially saving £160,000 in taxes.
However, he added: “This is assuming there will be no changes made to IHT itself, another unknown and one that requires further consideration based on the rules around gifting and trusts.”
For those who want to stay on the front foot and take action now, Mr Platt suggested: “It’s worth positioning yourself to ensure you maximise all available tax allowances, such as ISAs and pension contributions, before the current tax year ends on April 5, 2025.”
People can invest up to £20,000 per fiscal year into Cash ISAs without paying tax, and £60,000 per year into pensions.
Ms Reeves will unveil the new Labour Government’s Autumn Budget on Wednesday, October 30.
