The UK’s public borrowing hit £20.5 billion this April, the highest level for that month in over three decades.
With the figure overshooting forecasts by almost £3 billion, economists are warning that the Chancellor may soon face pressure to balance the books through tax increases, tighter spending, or rule changes.
Nothing has been announced yet, but discussions are already circulating around several tax areas that could be affected.
Income Tax thresholds under scrutiny
One likely candidate is a continued freeze on Income Tax thresholds.
If frozen beyond 2028, more people could find themselves in higher tax brackets as inflation nudges wages upwards, but tax bands remain static.
This “fiscal drag” particularly impacts pensioners, as the full State Pension nears the £12,570 personal allowance. Additional income from private pensions or savings could push many into the basic rate bracket for the first time.
Strategies such as using the Marriage Allowance or starting savings rate may help reduce exposure to unnecessary tax.
Are Cash ISAs under threat?
Rumours are circulating that the annual £20,000 tax-free limit for Cash ISAs could be lowered to steer savers toward investment products instead.
If this happens, individuals relying on cash savings could see more of their interest become taxable.
Using your full ISA allowance early in the tax year may offer a buffer against any surprise mid-year policy changes.
Inheritance Tax changes may be on the table
Gifting rules could also come under review, particularly the seven-year rule that currently allows large gifts to fall outside of your estate after seven years.
With the nil-rate band frozen until 2030 and new rules from 2027 including unspent pension pots within estates, more families may be affected by Inheritance Tax (IHT) than ever before.
Those planning to pass on wealth should consider acting sooner rather than later.
Stamp Duty – Will second home charges increase again?
In England and Wales, Stamp Duty surcharges on second homes already stand at five per cent, but could be increased further to match Scotland’s eight per cent rate.
Buy-to-let investors and second home buyers should watch this space closely and factor potential tax changes into their investment decisions.
Uncertainty may be unavoidable, but preparation is within your control. A forward-looking tax review can help identify opportunities and protect your finances against possible changes.
Speak with our team for expert advice tailored to your personal and business needs.
