Businesses owners, higher earners and investors are braced for tax increases after yesterday’s Autumn Budget.
Chancellor Rachel Reeves used her first Budget to unveil £40 billion of tax rises.
She kept her pledge to protect working people by not raising employee national insurance, income tax or VAT.
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Reeves also announced that the freeze on income tax thresholds won’t extend beyond 2028 – protecting people from further fiscal drag.
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But there are plenty of other tricks she has used to add to the tax burden, particularly for businesses and people hoping to pass on their pension pots.
Which taxes went up in the Budget?
Reeves targeted wealth taxes to help plug the government’s so-called spending inheritance.
In a blow for investors, the chancellor immediately raised capital gains tax (CGT) from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher earners.
She kept CGT and inheritance tax thresholds at their current levels – extending the latter’s freeze from until 2028 to 2030.
Reeves also announced that from April 2027, pensions will form part of someone’s estate for IHT purposes.
This risks pushing more people into the IHT tax trap.
Businesses were also targeted, with a 1.2 percentage point increase in employer national insurance (NI) to 15% from April 2025.
The threshold at which employers start paying NI will also be reduced from £9,100 per year to £5,000 per year.
This all risks adding to your tax bills if you have higher levels of savings and investments as well as if you run your own business.
Here are some ways to beat the Budget tax traps.
Make use of tax-free wrappers
Reeves may have tinkered with IHT but she at least left ISA and pension allowances alone.
You can still put money into these tax wrappers and earn capital growth tax-free.
Pension contributions also benefit from tax relief.
Isaac Stell, investment manager at Wealth Club, said: “Investors facing an ever-increasing tax burden should be making the most of their tax reliefs and allowances – including ISAs and pensions, but also venture capital reliefs like venture capital trusts.
“Investors receive up to 30% income tax relief upfront on up to £200,000 when investing in VCTs, and any dividends are tax free too.”
Laith Khalaf, head of investment analysis at AJ Bell, points out that investors who hold “unwrapped investments” outside an ISA or pension can perform a manoeuvre called a ‘Bed and ISA’ or ‘Bed and SIPP’ to move them inside a tax shelter.
He adds: “This does involve selling assets so there is potentially a capital gains tax liability at this point, though investors can mitigate this by judicious use of their annual £3,000 CGT allowance. Once inside the SIPP or ISA, any further gains are then free from tax.
“Investors who feel they might breach the £3,000 annual CGT allowance using this approach might consider pairing the sale of a profitable investment with a loss-making one. Losses can be used to offset gains, thereby reducing the capital gains tax liability, then either or both investments can be rebought within the ISA to avoid tax on future gains.”
Consider how you take pension income
One of the major changes in the Budget was bringing pensions into someone’s estate for inheritance tax purposes from April 2027.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warns that people who were planning to leave money in their pension to give tax-efficiently to family after death will need to revisit their finances.
She adds: “The likelihood is we will see people looking to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold.
“They might choose to give some of this money away to their family to help them with life’s milestones. We may also see an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the inheritance tax threshold.”
Use your spouse
Assets can be transferred to a spouse or civil partner free of CGT, so it may be worth moving your investments around if your partner is in a lower tax band.
You could even each make use of the annual £3,000 CGT allowance.
Khalaf explains: “By doing a ‘Bed and Spouse and ISA’ it’s also possible to then use two sets of the annual ISA allowance of £20,000 to shelter those assets from future capital gains.
“For higher rate taxpayers there may also be some merit in transferring assets to a spouse even where the gain exceeds the annual CGT allowance of £3,000, if they are a basic rate taxpayer.
“By increasing the rate of CGT for basic rate taxpayers more than higher rate taxpayers, the chancellor has narrowed the value of this ploy. But it might still mean paying CGT at 18% rather than 24%. In this scenario, capital gains are added to your income and can push basic rate taxpayers into the higher band, so it pays to exercise due care and attention when working out how much to transfer.”
Do you need to change how you are paid?
The chancellor may have claimed she isn’t targeting employees with a rise in employer NI.
But it will have an impact if bosses restrict pay rises or don’t hire more staff.
Another area that seems to have been overlooked is limited companies with one director who is the sole employee.
They don’t currently benefit from the annual employment allowance, which has been increased to £10,500, so could be hit with a higher tax bill once the NI threshold drops
“A large number of businesses with only a director on payroll pay themselves just below the secondary national insurance threshold to avoid paying tax and national insurance on their main payroll earnings, topping up their salary with dividends from profits,” says Kevin Drew, managing director at Ascentant Accountancy.
“This will likely see directors change the way that they remunerate themselves by way of a full salary, given that the threshold has dropped to £5,000 and there were no major changes announced in relation to dividend income.”
