How to prepare your finances for the autumn Budget

Oct 25

3 min read

On Wednesday 30 October, the new Chancellor, Rachel Reeves will deliver her first Budget.

Rachel Wyatt, wealth-planning expert at Arbuthnot Latham shares insights to help you achieve your long-term financial goals, whatever the outcomes of the Chancellor's decisions:

1. Balancing savings and investments

To build a solid financial foundation, it is important to strike a balance between saving for short-term needs and investing for long-term growth:

· Savings accounts: Ideal for short-term financial goals, savings accounts offer a steady and reliable return. Though the returns are potentially less than those you can expect from investments, savings accounts provide security and liquidity, making them suitable for emergency funds or upcoming expenses.

· Long-term investments: If you are aiming for growth over a longer time period, consider putting some of your money into investments. A general rule of thumb is to invest with a time horizon of at least five years to ride out short-term market fluctuations and for the potential to see meaningful growth.

· Investing for the next generation: You can start investing for your child’s financial future with accounts like a Junior ISA (individual savings account), which allows tax-free savings until they reach adulthood.

Note: Investments carry risk. You might not get back what you initially invested, so it is essential that you understand your risks and the impact of capital losses on your goals before investing.

2. Making the most of current tax allowances

Taking advantage of available tax allowances can help you retain more of your earnings and maximise your investment returns:

· Use your ISA allowance: As a UK resident, you can invest up to £20,000 per tax year in an ISA. Any returns you earn are free from income tax and capital gains tax (CGT). ISAs can be an efficient way to grow your wealth over time.

· Maximise pension contributions: Pensions come with tax benefits, making them one of the most effective vehicles for saving for retirement. Depending on your circumstances, pension contributions may qualify for tax relief, and any growth within the pension fund is tax-free. Check your allowances to ensure you are making the most of this.

· Consider your couples allowances: If you are married or in a civil partnership, explore whether you can optimise your finances by taking advantage of any couples allowances available. For example, transferring assets between spouses may help reduce overall tax liabilities.

Note: Tax reliefs and allowances are subject to change based on legislation, and the availability of these benefits may vary according to your individual circumstances.

3. Protecting your wealth

As your wealth grows, insurance can provide a safety net for your financial future:

· Mortgage protection: This typically pays off or covers a portion of the outstanding mortgage balance, ensuring that loved ones can continue living in the home without the burden of mortgage payments.

· Life insurance: Adequate life coverage can protect your family from financial strain in the event of terminal illness or death, to replace lost income and cover outstanding liabilities.

· Income protection: This can be an enormous support allowing you to maintain your standard of living and cover essential expenses when faced with an unexpected setback.

· Critical-illness cover: A serious health diagnosis can have a severe impact on your finances. You may need to take time off work for your treatment or have additional costs relating to your illness. Critical-illness cover can ease financial stress, allowing you to focus on your recovery.

4. Planning for passing on your wealth to future generations

Proper planning can help ensure that your assets are distributed according to your wishes and minimise potential tax burdens:

· Writing or updating your will: A will is a critical document that outlines how your assets should be distributed upon your death. Review it periodically to ensure it remains up to date with your current wishes and family circumstances.

· Inheritance tax (IHT) planning: Proactive IHT planning can help you pass on more of your wealth to your heirs by minimising tax liabilities. Consider making use of tax-efficient gifting strategies, such as annual gift allowances, or setting up trusts to manage how your assets are transferred.

· Life insurance: Having the appropriate level of life insurance can cover estate taxes and preserve the value of your estate. When properly structured it can be paid without waiting for the probate process to complete, giving your family quick access to the proceeds.

Guide to personal protection 2024