How the upcoming budget could impact your savings – expert pensions warning

Rishi Sunak: What to expect from budget with Victoria Scholar

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Rishi Sunak will deliver his Autumn Budget on Wednesday, October 27. While much of the Chancellor’s hand has already been revealed, including the poorly received rise in National Insurance for working Britons, more is likely to be on the cards as Mr Sunak seeks to bolster the Treasury’s pockets after more than 18 months of the coronavirus crisis ripping through the economy.

Mr Sunak said on Thursday: “At the budget and spending review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future.”

Last month Sunak announced a £12 billion tax rise on workers and employers to fund health and social care and the NHS backlog caused by the pandemic.

Next week’s Budget will include further longer-term plans to bring the budget closer to balance.

With some insight into what can be expected, Kevin Mountford, savings expert and co-founder of Raisin UK, has listed his predictions on the biggest changes expected and how they could affect savers’ hard-earned cash.

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Inheritance tax

Inheritance is one of the key ways savers bolster their bank accounts, but this could change in next week’s Budget.

Mr Mountford told “Many families now use pensions as a tax-efficient way to pass on wealth to loved ones free of inheritance tax.

“If you die before age 75, your beneficiaries may escape income tax on future pension withdrawals too.

“Pension experts are warning the Chancellor against targeting families by introducing an inheritance tax charge on the nation’s pensions pots – hitting families at the most difficult time.”

Lifetime Allowance on pensions

Pensions could be hit again, as it seems experts believe there are few areas off the cards when it comes to the upcoming Budget.

Mr Mountford said: “If you build up a pension that exceeds the lifetime allowance, you can end up paying tax at a rate of 55 percent if you take the money as a lump sum.

“The lifetime allowance is currently £1,073,100.

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“It has been frozen until 2026, so it seems unlikely that the Government will tamper with it.”

However, a key manifesto pledge of 2019 was not to raise National Insurance – something that will happen in April 2022.

“The amount of tax-free cash that people can pay into their pension each year is currently set at £40,000.

“Savers can also “carry forward” up to three years of unused allowances.

National Insurance

The increase in National Insurance will leave savers even further out of pocket, with the average taxpayer likely to be paying at least and third of their income to the Government.

Mr Mountford told “From April 2022, National Insurance contributions will increase by 1.25 percent, meaning people will pay national insurance at a rate of 13.25 percent.

“On top of income tax of 20 percent for basic rate taxpayers, this means most people will pay tax at a rate of 33.25 percent.”

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