What people are doing ahead of the Budget – and 6 last-minute wins

• The most common thing people have done specifically because of tax rise rumours in the Budget is to open a cash ISA (19%).
• This is followed by putting money in a stocks and shares ISA (18%) and paying more money into a pension to benefit from the tax relief (17%).
• Higher rate taxpayers take these steps more often anyway, but the Budget has been most likely to spur them to pay into a stocks and shares ISA or cash ISA (45% each).
• At least a quarter of additional rate taxpayers would have done these things regardless, but the Budget was most likely to persuade them to pay into a pension or give money away to family (39% each).

Figures from a survey of 2,000 people by Opinium for HL. It asked whether people had taken specific steps regardless of the Budget, whether they’d already taken action because of Budget worries, or whether they planned to ahead of the Budget.

Sarah Coles, head of personal finance, Hargreaves Lansdown:

“People aren’t taking Budget threats lying down. They have the chance to make changes ahead of the announcement, that will help protect them from any tax threats that might be lying in wait, and they’re grabbing it with both hands. Up to one in five have been spurred into action, and among higher earners it’s closer to two in five. There are some sensible moves people are making ahead of the Budget, and it’s not too late for you to take advantage too.

In most cases, people are taking steps they’ll be grateful for even if there’s no change to the rules. However, it’s vital not to let the rumours panic you into making a mistake.

Cash ISA

The most common step overall is to open a cash ISA. This is an essential way for people to save income tax, especially at a time when frozen thresholds and higher savings rates are pushing more people into paying tax on their savings, so it was already something 23% of people were doing.

However, it has seen the biggest uplift ahead of the Budget (on the to-do list for 19% of people). This is something we’ve seen reflected in take-up of the HL cash ISA – which has seen the number of people saving so far this tax year more than double compared to the same period a year earlier. There haven’t been any rumours around tax on savings, but people aren’t prepared to take any chances, and are taking advantage while they know where they stand.

Stocks and Shares ISA

The second most common approach is to pay into a stocks and shares ISA. Overall a third of people are set to do so this year (32%), and while 14% said they’d do it irrespective of Budget threats, 18% have been specifically spurred into action by rumours of potential tax rises. Most notably, there has been speculation around hikes to capital gains tax, and investments in an ISA are protected from this. This is reflected in the fact that the number of HL clients maxing out their stocks and shares ISA is up a third this tax year.

If you have assets outside a stocks and shares ISA, you can also take the opportunity to use the share exchange (Bed & ISA) process to sell assets outside an ISA – within your £3,000 capital gains tax allowance – and move them into the ISA wrapper. Twice as many HL clients have done this so far this tax year than a year earlier.

Pension contributions

Third on the list is to pay extra into a pension, which more than a quarter of people are doing – 17% of whom have been persuaded to do so by threats of changes to pension rules. This is reflected in the fact that the number of people maxing out their HL SIPP this year is up 71% from the same period a year earlier.

At the moment, you get pensions tax relief at the highest rate of tax you pay. There was speculation that this could be swapped for a flat rate, which would make pension contributions less rewarding for higher and additional rate taxpayers. More recent reports have suggested this might not end up happening, but if you were planning to make contributions at some stage this year anyway, and have the money handy, it still makes sense to do so while you know where you stand.

Junior ISA

The fourth most common move is to pay into a Junior ISA for a family member. This is reflected in the fact that the number of HL clients maxing out their Junior ISA has shot up by 40% in the current tax year.

JISAs grow free of income tax, capital gains tax and dividend tax. They also fall outside the rule that money invested by parents for their child will be treated as theirs for tax purposes when it produces more than £100 of income a year. And they’re useful if you’re worried about inheritance tax. You may be keen to give money away, but not want to entrust it to someone at a young age. A stocks and shares Junior ISA for a child under 18 will count as being handed over immediately for inheritance tax purposes, but will be tied up until they’re old enough to make sensible choices with it.

Gifts to family

The sixth most popular move is to give money away to family members. Only 8% of people were going to do so this year anyway, but an extra 15% have been persuaded to by rumours of Budget tax hikes, changes to nil rate bands or tweaks to rules around exemptions. Gifts can incredibly valuable – both for the recipient and the person giving the money away. You can give £3,000 under the annual gifting rules, and gifts of any size to anyone, which will fall out of your estate after seven years.

Possible mistake – tax free cash

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:

“The fifth most popular approach is far more concerning, with almost one in four people replying to the survey saying they were drawing tax free cash from a pension. Almost one in ten (8%) were going to do this anyway, but an additional 16% have been pushed into it by fears that the Budget could impose a limit on tax-free cash. Even more worryingly, given the popularity of the move among additional and higher rate taxpayers, it seems as though many are doing this before retirement.

Ripping tax free cash from your pension is a risky business. If you put it in a cash account, it could lose value after inflation. If you move it out of a tax-efficient environment and into one where you’ll pay tax, it will generate an ongoing tax headache. Meanwhile, if you’re planning to take a percentage of your pension in drawdown, or use the remainder to buy an annuity, you’re cutting the income you can take later in retirement. All of these things mean you need to think very carefully whether taking tax-free cash could do more harm than good.”

Last-minute pre-Budget wins

1. Pay into a stocks and shares ISA
2. Move existing assets into a stocks and shares ISA
3. Make extra pension contributions
4. Open a junior ISA
5. Open a cash ISA
6. Give gifts to family

Additional rate taxpayers

Higher rate taxpayers