With Budget speculation beginning to build, Dan Bosiacki, Technical Consultant at AJ Bell, reviews the tax-planning opportunities worth keep on the radar, from capital gains tax and ISAs to pensions, gifting and inheritance tax.
Although we haven’t yet seen or felt the cacophony of conjecture that has become custom in recent years, tension is beginning to build ahead of John Healey’s first budget as Chancellor on 28 October.
As we approach the opening fiscal event of the freshly reconfigured Labour top table, some undoubtedly have The Who ringing in their ears. If you know how it goes, you’ll know how it ends, but is that fair to level at the new team? Time will tell of course.
For those who prefer a power ballad over classic rock, the monthly statistics pack for April to August recently published by HMRC may have been rousing for the wrong reasons.
Simply put, we’re paying more income tax and national insurance – an increase of £16.9 billion in collections via pay as you earn versus the same period in 2025/26, and this is only expected to continue with the personal allowance frozen until 2031.
Interestingly, however, the total increase over the same period factoring in capital gains tax is slightly lower at £16.6 billion.
Meanwhile, Inheritance Tax collections remained consistent with 2025/26, with just a £0.1 billion increase.
Whilst those figures only cover part of the tax year, they suggest we may be starting to see a revised approach to tax planning and more focus on the gifting rules – the conversations we are having with advisers would indicate that too.
We’ll therefore cover the main initiatives to keep in mind.
Individuals retain a capital gains allowance of £3,000 per tax year, known as their exempt amount, while most trusts have an annual exempt amount of £1,500.
Whilst those are ‘use it or lose it’ allowances, losses realised must be reported within four years from the end of the tax year of disposal to benefit from carried forward indefinitely.
Assets can also be gifted to a spouse or civil partner on a no gain no loss basis which is useful if they haven’t used their own allowance. Bed & ISAs are available where a client wants to bring an asset in from the cold world of taxable and they have sufficient ISA allowance remaining.
However, beware the recent ISA reforms. Following a summer of activity, the next batch of measures to get Britain investing (more) are coming in April 2027.
They restrict Cash ISAs for those under 65 by reducing the limit for those accounts to £12,000 (the overall £20,000 allowance across all types remains), whilst the introduction of a flat-rate charge of 22% on interest and alternative finance returns within investment ISAs may be a real dampener for those who cherished the sacrosanct relationship between ISAs and tax.
With a transfer block into cash accounts also to contend with, clients may be less enthusiastic but should not be deterred. Instead, a proactive approach may be appropriate with investing explainers and education.
You will also need to review any model portfolios assembled with a 100% allocation to money market funds as those will cease to be qualifying ISAs under the new rules. Portfolios that include a mix of conventional assets will however pass the test.
In addition, the future remains uncertain for the Lifetime ISA. HM Treasury consulted on their First Time Buyer ISA prototype in June which, if advanced, will see the dual-purpose wrapper replaced with a property purchase specialist – watch this space.
Finally, the trusty pension, about to be welcomed into the estate fold for inheritance tax purposes from April 2027. Most of the legislation is now in place, and two parts of HMRC’s three-pronged technical note series are now available.
The industry is clearly digesting the changes and planning accordingly. The gifting of tax-free pension lump sums as potentially exempt transfers (PETs) is increasingly an aim to start the seven-year clock ticking as early as possible.
Gifts from surplus income taken from flexi access drawdown or natural income paid from ISAs are growing in popularity but you must ensure that clients can meet the gifts out of excess income without compromising their standard of living and via what should be viewed as normal expenditure.
Chargeable lifetime transfers (CLTs) to Trusts remain a consideration as do gifts made directly to charity or to donor-advised funds. In all cases, it should be reiterated to clients that full and thorough records of gifts must be kept ensuring estate administration can run smoothly and any interest taken by a tax inspector can be promptly assuaged.
As no.10 pivots to tackle areas and policies of interest and the walls of taxation edge closer, the one constant remains – the weeks prior to Budget are for measured planning rather than speculative moves, particularly where those actions cannot be wound back at an acceptable cost.
At AJ Bell, we will always advocate circumspection and measured reaction once the finer details are known.
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