New Chancellor’s statement: are tax rises on the horizon to help plug a £22bn black hole?
Today, new chancellor Rachel Reeves revealed cuts to start plugging a £22 billion black hole in public finances.
She also stated “difficult decisions about tax” will be included in the Budget, which is set for 30 October.
Indeed, the press continues to speculate if capital gains tax and inheritance tax in particular may be targeted.
If you’re an experienced investor concerned about imminent tax rises, what could you consider doing to prepare?
Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. These investments are for the long term. They are high risk and can fall as well as rise in value: you could lose all the money you invest. Tax rules can change and benefits depend on circumstances. Past performance is not a guide to the future. Photo credit: UK Government.
Make the most of available tax breaks whilst you can
Even without any changes to existing arrangements, taxes as a share of national income are forecast to grow from 36.5% of national income in 2024/25 to 37.1% in 2028/29, not least due to an ongoing freeze to income tax thresholds. (Also see our article: Income tax haul is set to swell, even if rates don’t rise)
If this worries you, you may want to consider using your tax-efficient allowances and reliefs in full whilst they are available – and as generous as they are.
ISAs – tax-free growth and income
Every year, you can shield up £20,000 from tax on UK dividends, interest, and capital gains on investments within the wrapper.
SIPPs – up to 45% tax relief and tax-free growth
If you are eligible, contributing to a pension offers some of the most generous tax reliefs – including up to 45% tax relief on the way in and tax-free growth while you’re invested (you can read more in our article: Pensions: the most generous tax relief around?)
VCTs, EIS and SEIS – up to 50% income tax and capital gains tax relief
If you’re an experienced investor comfortable with investment risk, once you’ve maximised your pension and ISA contributions you could consider investing in British startups via the government-backed Venture Capital Schemes.
In return for taking the risk of backing ambitious young businesses, Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS), and the Seed Enterprise Investment Scheme (SEIS) could let you claim back some of the amount you invest from your tax bill. You could even claim back tax you’ve already paid. What’s more, if your investment increases in value, the growth could be free of CGT.
VCTs, EIS and SEIS are only for experienced investors. Tax rules can change and benefits depend on circumstances. Decisions should be based on the investment merit, not the tax reliefs alone.
VCTs
- Up to 30% income tax relief
- Tax-free dividends
- You can invest up to £200k per tax year
- Tax relief available in the tax year you invest
- You must hold the investment for at least five years
EIS
- Up to 30% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Capital gains tax deferral on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £2 million per tax year (if including knowledge-intensive EIS)
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
SEIS
- Up to 50% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Up to 50% capital gains reinvestment relief on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £200k per tax year
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
EIS and SEIS funds targeting pre-Budget allotment
To help make tax planning easier for investors, a few EIS and SEIS funds have launched special tranches targeting pre-Budget deployment – not guaranteed.
This could allow experienced investors to “lock in” the tax relief at the current level. In our recent article, we give a quick overview of the available reliefs and of funds which are targeting a pre-Budget allotment.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.