The Government confirmed £26 billion worth of tax rises, affecting savers, workers and investors across the country.
Millions of people are being urged to take action after Rachel Reeves’ Budget delivered what one expert called a “tax tsunami”. The Government confirmed £26 billion worth of tax rises, affecting savers, workers and investors across the country.
But while the changes will hit households from every angle, financial experts say there are still ways to protect your money if you act early. Laura Suter, director of personal finance at AJ Bell, said the Budget left many people worried about their incomes and savings. She said: “The chancellor unleashed £26 billion of tax rises on the public, with much of it landing at the feet of savers, investors and workers.”
She added: “While there’s no doubt that tax increases are coming, there are clever ways to mitigate the impact of this tax tsunami. Making smart moves before some of the changes come into effect, while also getting the most out of the tax breaks that remain, will put you on good financial footing to weather the storm.”
The 9 ways to beat the “tax tsunami” Budget are below.
Rachel Reeves’ Budget delivered what one expert called a ‘tax tsunami’ (Image: Getty)
Don’t ditch salary sacrifice
Many workers rely on salary sacrifice to boost their pension contributions. From April 2029, the National Insurance saving 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. Despite the National Insurance savings being limited, what you pay in will still be exempt from income tax and workers can still enjoy pension tax relief up to their marginal rate of income tax.”
She added that pension payments still reduce your “adjusted net income”, which can pull people out of higher-rate taxes or other costly tax traps.
Beat the frozen tax allowances
Income tax bands will now stay frozen until 2031, pushing more people into higher tax brackets as wages rise.
Laura said: “More people will be pushed into the next tax bracket and as they get a pay rise will see more of their income hit by tax than they would have.”
She warned that key thresholds, including the £60,000 child benefit clawback and £100,000 personal allowance withdrawal, create punishing tax rates of up to 62% once National Insurance is included.
Her advice is simple: use pension contributions to bring income below those limits. She said: “It will involve a little bit of extra admin but will still be well worth it when you consider the potential tax savings on offer.”
Use the Lifetime ISA while you still can
The Government plans to review the Lifetime ISA and introduce a simpler replacement, but nothing has changed yet.
Laura said: “Those eligible for a Lifetime ISA can still open the account, pay in up to £4,000 each tax year and receive a 25% government bonus, adding up to £1,000 in free money per year.”
She explained that the scheme remains “pretty unbeatable” for first-time buyers and a strong option for self-employed people saving for retirement.
Protect your cash savings from tax
Higher interest rates mean millions more will pay tax on their savings. That number is expected to hit 2.64 million people this year.
Laura said tax on savings “will rise 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’s more important than ever to make sure you’re protecting your cash from tax.”
Cash ISAs remain one of the simplest strategies, with savers still able to pay in up to £20,000 until the allowance is cut in 2027 for those under 65.
The chancellor unleashed £26 billion of tax rises on the public (Image: Getty)
Prepare for the dividend tax squeeze
Dividend taxes have increased repeatedly in recent years, and they are rising again next April.
Laura said: “The 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 forecasts 3.7 million people will pay dividend tax this year. Her advice is to use remaining ISA allowances now, including via a “Bed and ISA”, to move investments into a tax-free wrapper before rates rise again.
Use gifting allowances to cut inheritance tax
Inheritance tax thresholds will remain frozen until 2030-31, meaning more families will be dragged into paying it.
Laura said: “Every individual can gift up to £3,000 per year free of IHT. Couples can combine their allowances to give away up to £6,000 tax-free annually.”
She also highlighted exemptions for weddings, small gifts, and gifts from excess income, which can all reduce future tax bills.
There are some clever ways to mitigate the impact of the ‘tax tsunami’ (Image: Getty)
Consider cash alternatives
The Cash ISA allowance will fall from £20,000 to £12,000 in 2027 for under-65s.
Laura warned that cash savers should check whether they are “unnecessarily hoarding too much cash” and consider low-risk investment alternatives such as money market funds, bond funds, gilts or multi-asset portfolios.
Use every tax break available
Laura said many households are missing out on financial support they qualify for. She said: “Do some digging around and see if you’re eligible for valuable government tax breaks or benefits.”
These include marriage allowance, tax-free childcare, free childcare hours and other support.
She also reminded people that pensions remain one of the most generous tax reliefs available. She said: “For a higher rate taxpayer, every £1 in their pension only costs 60p.”
Act fast on VCTs before tax relief is cut
Venture Capital Trusts currently offer a 30% tax rebate on investments up to £200,000, but this will fall to 20% from next April.
Laura said: “Anyone planning to invest in VCTs could consider doing so before April, to lock in the higher tax relief before the rules change.”
