Budget 25: “Please can I have some more?”

Oliver Twist famously asked for more. In her upcoming Budget, Chancellor Rachel Reeves is likely to insist on more. The Government faces an economy reluctant to grow, she knows that she can make the most money through small changes to the big taxes – which she’s already done – and her party has stumbled through all sorts of problems. She needs to do something, so it’s likely we’ll see tinkering at the edges in ways that could affect your wealth, as we explain below. 

Second time lucky? 

Rachel Reeves is Britain’s first-ever female chancellor. Her next Budget speech, on 26 November, will be her second. But it may feel all too familiar.  

None of the big problems Labour faced last summer has gone. Most persist – some have worsened. Britain remains mired in social polarity and economic stagnation.   

She will inevitably point out the positives and talk of hard choices. But what might those choices be? 

While only she and those close to her know for sure we can attempt an educated guess, in order to prepare. 

Tax  

The 2024 Budget offered us a record £40bn of tax rises, presented as a one off. A year or so later, and little improvement in the world situation, we may get more of the same. This seems reasonable given the spring Spending Review proposed more spending on the NHS and defence.  

One target might be the capital gains tax.  

CGT, as we all know it, became less lucrative last April with both its lower and higher rates rising notably. Exemptions have also been falling. The Chancellor may just push these levers a little further. 

She might also apply specific rates to certain asset classes. The topic of second homes is one we’ve heard mentioned.   

If she does act, expect the rules to change immediately or quickly – the Chancellor will want to disincentivise assets disposals before next April.  

Another target may be the inheritance tax, or IHT.  

Farmers and family business owners remain unimpressed with their loss of IHT exemptions. The Treasury takes a harder view of this additional money due into public coffers.   

That view may harden. For example, she could amend the financial thresholds of your personal allowance. She could change the gifting rules, which have stood at seven years for some time – after all, there’s an old idea that this should stand at ten years. Another, more speculative suggestion doing the rounds of informed parties is for a lifetime cap on gifts.  

The other thing, in keeping with the government’s philosophy, would be to simplify CGT and IHT. Expect any simplification to favour the government!   

The other, other thing – which is even more a government philosophy thing – would be to continue its unstated policy of tax creep. This is where asset prices, wages and inflation lift you up and away from frozen tax bands and tax allowances.  

It’s not just a Labour thing. Taxes as a percentage of GDP started rising in earnest in the mid 1990s and are now at a postwar high.   

It’s perfect for politicians: you bury the detail – because it’s only really geeks like us that spot it – and most people can’t work out why they’re feeling poorer.  

All the more reason to plan ahead, look at the detail and prepare with a professional. 

ISAs 

Earlier this year, the Government promised to rethink the way individual savings accounts work.  

As a nation, we allocate some £70bn to about 12m ISAs every year; there’s around £725bn in total squirrelled away, 40% of it in cash ISAs. The Chancellor has a long-stated ambition to divert more of his money into UK and/or productive assets. That would mean fewer opportunities for cash ISAs (namely tax efficient savings accounts) and more for stocks and shares ISAs (the sort of funds we allocate client money to).  

But then a massive backlash about a perceived loss of savings opportunities sparked a U-turn: they’re not going to change cash ISAs this Budget after all. “Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy,” a Treasury spokesperson said.   

But experience tells me we shouldn’t rule out something. It wouldn’t be in the speech but perhaps buried on page 94 of a background document. For example, you can put £20,000 a year in ISAs. Maybe they’ll let you allocate more? Tax on investments doesn’t raise much for the Treasury and it fits the Government’s growth agenda.  

We love ISAs, as you might imagine. They and your pension are foundations for managing your wealth and tax liabilities.  

But they’re not alone: venture capital trusts and enterprise investment schemes are other ways of investing tax efficiently. They channel your wealth into exciting early stage or start-up companies. If you’re an entrepreneur, you may well be in receipt of such funding. It’s hugely valuable.  

What government would knot or cut this economic umbilical cord? On the contrary, we would very much welcome positive changes to VCTs and EISs, as they’re known for short. A tweak to the allowances wouldn’t dent tax receipts much but could make a material difference to your investment portfolio and the young companies it allocates to.  

We may see some, all or none of the above. We may see something completely different – like the mansion tax beloved of Labour supporters. But it’s reasonable to expect changes to ISAs plus some form of tax increase.  

We’re here to help you prepare and weather these storms. If you’d like to know more, please give us a call on 020 7467 2700 or email us at hello@firstwealth.co.uk. 

VCT/EIS/SEIS’s invest in unquoted, growth-oriented companies that involve higher risk than more mainstream companies listed on the main London Stock Exchange and their performance tends to be more volatile. You may experience sudden and substantial falls in the value of your investment. 

There is no guarantee that the qualifying status of the shares will be maintained. This could result in the loss of tax reliefs. 

Shares in unquoted companies may be more volatile and can be hard to sell. An exit is only possible when each individual company is sold. 

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.