The Budget details lurking in the small print

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “You could be forgiven for thinking there were more than enough Budget announcements at the dispatch box, but as always, delving deeper into the small print of the documents reveals more tax hikes, rule changes and admin to get to grips with.

“There are also some eye-watering figures that show just how much more tax is rising as a result of changes.

“The top 10 per cent will pay more than £2,000 extra on average in tax, as a result of the changes announced in the Budgets of 2024 and 2025.

“This is compared with an average increase of just over £500 across the board. They don’t just face a bigger tax bill, it’s also bigger as a percentage of their income, with the tax take increasing by over 1.5 per cent of their income.

“This is partly a result of frozen income tax thresholds, but also because the more you earn, the more likely you are to save and invest, so things like dividend and savings tax hikes hit harder.

“The Budget documents included plans for a consultation early next year to replace the Lifetime ISA with an ISA product to support first-time buyers.

“The LISA has been a huge boon for young people, desperate to get onto the property ladder.

“It has also proved a valuable way for people to save for retirement, especially self-employed people, who fall seriously short when it comes to pension contributions.

“The right consultation on its replacement is vital, and needs to ensure that dedicated savers and investors, who have been putting money away for their first property or for retirement, aren’t disadvantaged by any change.

“The broader issue of encouraging more self-employed people to put money away for the future also needs to be seriously considered.

“The Budget speech announced higher rates of tax on savings interest, dividends and property income, with a two percentage point rise across the board on property income and savings interest from 2027, and a two percentage point rise for basic rate and higher rate dividend tax from April next year.

“This will make taking advantage of Cash and Stocks and Shares ISAs even more essential, but once you’ve used these, and bust your annual tax-free allowances, there will be a heftier tax bill to pay.

“The taxman has introduced rules to make mitigating this tax bill harder, because any deductions you make – through things like pension contributions – will come off your earned income first, so a basic rate taxpayer will save 20 per cent rather than cutting income tax on savings interest at 22 per cent.

“The small print revealed plans to make people pay tax more quickly when they work for themselves or where they pay additional tax through self-assessment.

“From 2029, if they’re an employee, they will have to pay more of their tax bill as they go along through the PAYE system, and if they work for themselves, the government will consult early next year on changing the system so they have to pay the tax sooner.

“On paper, this should help avoid some people being wrong-footed by the gap between earning and paying tax.

“However, in reality, there’s going to need to be careful consideration of the transition, so people aren’t suddenly confronted with tax bills for multiple years.

“Frozen inheritance tax thresholds have taken a toll already, and will continue to do so until 2031.

“Meanwhile pensions will be brought into the tax net, and the changes to reliefs on farms, businesses and AIM shares will also add to the bill.

“The documents revealed that at the start of the parliament, people paid out £8.3 billion in tax and by 2030/2031 this is going to rise to £14.5 billion.

“This is an incredible hike, in a tax that’s widely hated for striking after you have passed away. It means anyone facing a potential tax bill needs to consider whether they can make lifetime gifts to ease the pain.

“The rules around gifts remain unchanged, despite rumours to the contrary before the Budget.

“Capital gains tax, meanwhile, has faced not only the slashing of the annual allowance, but also a hike in the rate – in previous Budgets.

“As a result, at the start of the Parliament, people faced a bill for £13.7 billion and by 2030/31 this will more than double to £30 billion.

“It’s a huge hike for investors with assets outside pensions and ISAs, and will make it essential to consider Stocks and Shares ISAs.

“For those realising property gains, meanwhile, this is an unavoidable sign of just how much tax this kind of investment lands you with.”