A smaller pond to fish for tax

This leaves Ms Reeves with a far smaller tax pond in which to fish –especially if she is to make any impact on reducing the claimed £22 billion Treasury black hole.And that tax pond is almost exclusively stocked with the wealth of investors.

Dividend tax has already been increased for many. And previous changes to stamp duty and mortgage interest relief have made it much harder to profit from the hugely popular buy-to-let property market.

The annual Capital Gains Tax (CGT) allowance has been cut to £3,000 for2024/25 – down by £9,300 in just four years.T

he individual Inheritance Tax (IHT) threshold has been frozen at £325,000 since April 2009. If it had increased each year in line with inflation, it would have risen to £503,000 today. That is a sobering thought for families now facing an IHT liability.HMRC figures confirm that IHT raised £5.99bn in 2021/22 therefore it’s highly unlikely we will see an increase in the threshold anytime soon. The current additional allowance, raising the threshold to £500000 when you pass your family home to children or grandchildren, may also be an easy target.

Taxing wealth was also a tactic of the last government, but it is much more of a threat under Labour given their self-imposed barrier to traditional tax raising options.

As Budget day fast approaches, we thought it might prove helpful to provide a checklist of the most popular tax-efficient investment options. This checklist could also prove to be the ones under threat on Wednesday.

Assuming the checklist items survive the Budget, there may still be time for you to maximise your current allowances before the tax year ends.

1 Individual savings accounts (ISAs) You can save a maximum of £20,000 this tax year without paying any tax on growth or income.

2 Pensions Tax relief is available at your highest marginal rate on contributions up to 100 per cent of your annual earnings, subject to a maximum of £60,000 a year). Pension funds grow largely tax free.

3 Junior ISA If you are a parent or guardian, you can invest in a stocks and shares and /or cash ISA for a child under 18. The limit is £9,000 annually and, once opened, other family members and friends can add to it within that limit. No tax is paid on growth or interest.

4 Junior SIPP Parents can pay up to £3,600 each year into a pension for their child, including tax relief. Once set up, grandparents can also contribute, subject to the maximum. Like all private pensions the fund is sheltered, in the main, from dividend and CGT.

5 Premium bonds Investors can hold up to £50,000 in premium bonds and prizes are paid tax free.

6 AIM investment Worth considering for experienced investors concerned about IHT are unquoted AIM shares.

7 Venture capital trusts (VCTs) These are investment firms that carry a higher risk than most other investments, as they are limited to small companies with high- growth potential. Investors benefit from a3 0 per cent upfront tax relief, up to a maximum investment of £200,000 a year. They must be held for a minimum of five years, but then dividends are tax free, and growth is also free from CGT.

8 Enterprise Investment Schemes (EIS) These are similar to VCTs, in that upfront tax relief of 30 per cent is available on the investment. The difference is that these schemes are designed to offer smaller and higher-risk companies access to finance. Tax relief is available up to £1 million invested, but the investment must be held for three years. Given the considerable risks involved, this is an investment class where independent professional advice is essential.

Of course, all of this could change in Ms Reeves’ Budget, and professional advice should always be sought.

We at Waverton are hosting a post-Budget webinar at 2pm on Friday, 1 November, where we will discuss the changes in depth.

Remember, tax treatment and eligibility to invest depends on personal circumstances and tax rules may change in future.

Find out more here