IT’S officially autumn and with it comes the budget… and as government borrowing soars, experts are warning of a tax bonanza that could spell hikes for millions.
In a pre-Budget hammer blow to Andy Burnham, new figures this week revealed that the government has borrowed £8billion MORE than they originally planned this year… making tax hikes more likely. But there is a glimmer of hope, in the shape of a few smart money moves that could help you shield your cash from the taxman.
Latest figures show the Treasury has borrowed £77.3billion since April, which is £8.1billion higher than projections by the Office for Budget Responsibility back in March.
When the government needs to borrow cash, that means it is spending more money than it is raising through taxes.
Because borrowing is high, the Chancellor John Healey will be under huge pressure to fill the black hole in the government’s finances.
An easy way to do this is to raise taxes, and economists have warned households to brace themselves for pain.
Philip Shaw, an economist at Investec, said: “We suspect that some tax increases are virtually inevitable.”
While Sarah Coles from the investment platform AJ Bell warns: “We could be facing a tax-maxxing Budget”.
Get planning NOW to ward the taxman off picking your pocket.
The four taxes that could go up
Nothing is set in stone and we will need to wait and see what happens on Budget day on October 28.
But rumours have been swirling that certain taxes are being eyed up by Mr Healey.
A major property tax shake-up is expected to be announced.
Andy Burnham has previously supported scrapping council tax and stamp duty in favour of a new system, and it’s thought the Chancellor will fall in line with this.
They could introduce either a proportional property tax or a land value tax instead.
A proportional property tax would see homeowners pay a flat 0.48% charge on their property’s value.
It’s also expected Mr Healey will push ahead with the ‘mansion tax’ announced in last year’s Budget by previous chancellor Rachel Reeves.
The tax surcharge means properties valued above £2million could be charged up to an extra £7,500 per year – although reports have been circulating that this threshold could be cut to £1.5million.
It is also expected that Mr Healey will leave the deep freeze on income tax thresholds in place.
You can earn £12,570 per year tax free – after that, you will have to pay tax on your earnings. This threshold is called the personal allowance.
Then, you pay the basic rate of 20% on up to £50,270 of earnings, and then the higher rate of 40% on anything between that and £125,140.
The additional rate of 45% is charged on earnings over £125,140.
But these tax bands have stayed frozen since 2021.
This means as wages rise, more people are being pulled over into higher tax bands – and paying more tax.
Capital Gains Tax – the tax on the profit you make when you sell or give away an asset that has gone up in value – is rumoured to be up for a shake-up.
The first £3,000 of gains each year is tax-free, but after that you pay 18% if you’re a basic-rate taxpayer or 24% if you’re in a higher tax band.
Mr Healey has previously floated the idea of bringing CGT rates closer to income tax rates.
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Smart money move #1: Stash cash in an ISA
With tax rises looming, now is the time to take advantage of any tax perks or relief you might be missing out on.
Although we don’t know what taxes will be raised in the budget, it’s a good idea to take advantage of any generous tax allowances available.
The simplest way to shield your hard-earned savings is to maximise the benefits of a Cash ISA or Stocks and Shares ISA.
Using an ISA is a no-brainer as it acts as a tax-free shelter for your savings and investments, with nothing owed to the taxman for interest earned or money made from your investments.
There are two main types of ISA: a cash ISA, where you earn interest on your money, and a stocks and shares ISA, where you make money from investing.
You can put up to £20,000 in a Cash ISA for the current 2026/27 tax year but in April 2027 this limit will drop to just £12,000.
Any money already in your Cash ISA before the deadline will remain tax-free.
Smart money move #2: Top up your pension & get £100s in free cash
Another smart move is to save cash in places where you benefit from tax relief – and stashing your money into a pension is a great option.
Saving into a workplace pension is just about the most tax-efficient way to save because of the tax relief you get and free cash you get from your company.
That means you could get £100s in free cash added into your pot… it’s simple.
Basic-rate taxpayers get 20% tax relief – which essentially means you get free cash added to your pot thanks to the government.
That means if you pay in £80, another £20 is added to your pot for FREE, giving you a total of £100.
Luckily, if you are aged 22 and over and earning more than £10,000 a year, you will already have a pension – your employer legally has to automatically enrol you into a company pension scheme.
The rules state that you must save at least 5% of your annual salary into your pot, and your employer adds a minimum of 3%.
But if you can afford to add more money to your pension you might want to consider doing it before the Budget.
Remember, you can only access money in a pension at 55 (rising to 57 in 2028).
Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, said: “If you have a bit of spare cash that you can afford to put away, it’s a real no regrets move that your future self will thank you for.”
Smart money move #3: Invest in Premium Bonds
Premium Bonds are another tax-savvy way to save.
They work a bit like a lottery for your savings – instead of earning interest, you are entered into a monthly prize draw, where there’s a chance to win millions of prizes worth between £25 and £1million.
If you win a prize, you don’t have to pay ANY tax on it. So, you could win £1million… and not pay a penny of that jackpot to the taxman.
The prize fund rate – the average return you’ll likely get on your savings – is 4.35%.
The odds of any £1 Bond winning something is 21,000 to 1.
Smart money move #4: Consider Government bonds
If you’ve got a bit of cash to spare, you might also consider buying a low-risk type of investment called a UK government bond.
A government bond is essentially an IOI. You lend money to the government for a fixed time period that it uses to fund its spending, such as paying for healthcare, schools and new roads.
In return, you get regular interest payments over a set period of time, and then you get your money back on the date the bond ends, known as the “maturity” date.
A fixed period can be for three months to as much as 50 years.
There’s tax perks as well – any profit made from a UK government bond is free from capital gains tax, unlike many other investments such as shares, funds or investment trusts held outside an Isa.
Two money mistakes to avoid that could cost you £1,000s
IN the run up to the Budget, it’s tempting to make rash decisions about your cash.
Don’t panic and pull cash out of your savings, like many people did in the run-up to the 2024 Budget.
During this time, there were concerns that a generous pension perk could be scaled back.
You are allowed to withdraw 25% of your pension savings completely tax-free.
With concerns that this was under threat, people started pulling their cash from their pension.
Official data indicates that at the 2024 budget alone, savers withdrew an additional £10 billion.
It may be tempting to do the same in the run-up to this Budget with amid uncertainty around what could happen.
But Sarah Coles from the investment platform AJ Bell warns: “Some may be doing this well before they need it, so they risk spending it, and eroding their potential retirement income.”
Don’t miss out on a Lifetime ISA.
This is a handy savings account which pays you a 25% government bonus on up to £4,000 of your savings each year.
Former Chancellor Rachel Reeves first announced plans to scrap the current Lifetime ISA (LISA) and bring in a new First Time Buyer ISA for first-time buyers in her Autumn Budget last year.
While a “new and improved product” has been promised it might not be as generous in terms of the bonus.
A sensible move to do before the Budget would be to open one before it disappears.
If you’re aged 18 to 39 and not already saving in a LISA you might think about opening an account.
Sarah says: “The government has said that anyone who takes out a Lifetime ISA should be able to use it as normal, even after the replacement has been introduced, so it shouldn’t hurt to at least open a LISA and bank as much of the bonus as you can.”