There’s a week left until the Budget and these are the five timebombs set to detonate – and how you can protect your finances

There’s just one week to go before the Budget, and households are bracing themselves for another onslaught of measures that could further hammer their finances.

Investors will be relieved to see that at least one tax raid appears to have been ruled out after Chancellor John Healey reportedly rejected calls this week to raise capital gains tax. Had he gone ahead, investors would have faced a higher tax rate on profits from selling assets such as second homes or shares.

But don’t relax just yet. The Chancellor will inevitably increase some taxes to pay for spending elsewhere – even if there is some support for lower-income households alongside the increases.

Even if he doesn’t announce any tax raising measures, you will need to steel yourself for a series of Budget timebombs that are already lying in wait and set to go off between now and 2031.

When the last one goes bang, it will have been quite some time since former Chancellor Rachel Reeves set them ticking in her two Budgets and Spring Statements.

Arguably it was prudent to leave years between announcing a tax grab and enforcing it, so that households, businesses and HMRC have time to prepare.

But the delay also means the Budgets in which Reeves announced them – and perhaps Reeves herself – will be a distant memory in taxpayers’ minds by the time the full impact of her actions is realised.

The first bomb lying in wait is the cut to the cash Isa allowance, which will detonate in April next year. From then on, under-65s will be restricted to saving £12,000 of their £20,000 allowance in cash Isas. The changes will create complexity and confusion in a product until now loved and trusted by savers for its simplicity.

Next to go off will be a change to rules on inheritance tax, which will see unspent pensions drawn into its net for the first time from April 2027. Wealth planners have told me how ill-prepared families are for this monumental change.

At first sight, it looks like just another tax grab. Unspent pensions will be taxed at 40 per cent for those who have used their inheritance tax-free allowances. But due to quirks in the rules, some families will pay substantially more – up to 91 per cent in the most extreme cases.

Families may need to substantially rethink how they pass on wealth in light of the new rules. Even those with no tax to pay will be deluged with extra paperwork – at a time when they are grieving and already overwhelmed.

The next bomb goes off in April 2028, when properties valued at £2million or more will face the new mansion tax. Officially called the ‘high value council tax surcharge’, the levy of £2,500 to £7,500 a year is already starting to distort the property market. Homeowners who have valuable family homes but little wealth have told Money Mail they are now worrying about how they will manage.

A year later comes the blast that has been most overlooked. In 2029, a £2,000 cap on salary sacrifice will be introduced, resulting in higher national insurance bills for millions of workers and employers. Salary sacrifice allows you to exchange part of your salary for a pension contribution of the same size, resulting in a lower national insurance bill for you and your employer. From 2029, you will only be permitted to sacrifice £2,000 a year.

By the early 2030s, the change is expected to cost £2.6billion a year, according to the Office for Budget Responsibility.

Employers are already hurting from Reeves’ first national insurance hike, which came into force last year. This second one will increase the cost of hiring once again. The Institute for Fiscal Studies think-tank predicts it will result in lower wages for employees. Let’s hope that by 2029 employees can take the squeeze, perhaps because cost of living pressures have eased and the unemployment rate fallen. Sadly, I doubt it.

The destruction wrought by Reeves’ Budgets will be felt all the way until 2031, which is the year when her freeze on income tax thresholds finally ends. 

By this time, workers will be paying £12billion more a year in tax than if the thresholds had risen with inflation since 2021 when they were first frozen. About 5.2million more workers and pensioners will be paying tax for the first time and close to five million more will be paying the 40 per cent higher tax rate.

So what can we do to protect ourselves? Whatever Budgets throw at us, using tax-free allowances is key. Shovel what you can into your pension. Save into a tax-free Isa to lower your tax bill. And finally, keep abreast of all the latest changes and what they mean for you. 

Signing up for our Protect your Money newsletter series is a great start. Our six-part plan will help you to shelter all aspects of your finances from the upcoming Budget and beyond.