The first Budget of Andy Burnham’s government is coming up on 28 October, and speculation is already rife about what chancellor John Healey could include.
Rumours range across everything from a Wealth Tax to changes to the State Pension, but this is nothing new.
Before most Budgets there is intense speculation about what may or may not happen, and it’s not uncommon for people to pre-empt decisions that never come to fruition. Doing so can end up costing you, and it is always better to wait and plan around any certain changes rather than reacting to noise and rumour.
Read on to discover three times when reacting to Budget rumours would not have been a good idea.
1. Lump sum pension withdrawals in 2024 and 2025
Pensions are often one of the main areas of speculation ahead of a Budget, as there are several tax rules and allowances that can be adjusted by the government.
Indeed, in two of the most recent Budgets, speculation was rife about potential changes to the 25% tax-free pension lump sum. Many believed that the tax-free portion of pensions was set to be reduced.
This prompted some people to withdraw significant sums from their pensions in preparation. International Adviser reports that pension savers withdrew £3.9 billion in lump sums from defined contribution pensions between Q4 2024 and Q3 2025, an increase of £868 million on the previous 12-month period.
Yet the widely anticipated reduction to the tax-free lump sum never came. Instead, the major pension reform announced in the Budget was the decision to bring most unused pension savings into the scope of Inheritance Tax (IHT) from 2027, giving savers several years to prepare for the change.
However, once you have withdrawn money from your pension, you generally can’t put it back in and may face a charge if you do.
Moreover, when your money is invested inside a pension, your savings have the potential to grow over time through returns and compound growth. Once withdrawn, that money may instead sit in cash, be spent, or be invested in a less tax-efficient environment.
Inflation can further erode the value of money that is left sitting in cash, and even if the money is eventually reinvested elsewhere, you may have lost valuable time in the market.
So, before making a large pension withdrawal ahead of a Budget, it’s worth considering what you could lose if the changes you are planning for don’t actually happen.
2. Business Asset Disposal Relief in March 2020
Business Asset Disposal Relief (BADR), formerly known as “Entrepreneurs’ Relief”, is another good example of how Budget speculation can influence financial decisions, and not always for the better.
Ahead of the March 2020 Budget, there was intense speculation that BADR would be abolished altogether, which would have seen business owners paying far more tax on a sale.
Some responded by pushing forward their sales or undertaking other tax planning in an attempt to secure the existing £10 million lifetime limit before the Budget.
However, the relief was not abolished. Instead, the government reduced the lifetime limit on qualifying gains from £10 million to £1 million.
While the change was significant, it was less drastic than the abolition that had been widely anticipated, and only around 20% of people eligible for the relief were expected to be affected.
For a business owner who was already planning to sell, bringing a transaction forward may have been worthwhile if it secured valuable tax relief under the old rules.
But for someone who changed their plans solely because they expected the relief to disappear, the outcome could have been very different. They may have ended up selling at a lower price in the hope of securing a higher relief rate. Or, they may have sold early and been rushed into making unfavourable decisions, such as selling off assets they still need or pre-empting their exit strategy.
3. Capital Gains Tax speculation in October 2024
The speculation surrounding Capital Gains Tax (CGT) ahead of the October 2024 Budget is perhaps the clearest recent example of people changing their financial behaviour in response to a tax change that had not yet happened.
Ahead of Rachel Reeves’ first Budget as chancellor, there was intense speculation that she could raise CGT rates substantially and perhaps bring them in line with Income Tax.
According to a government report, record amounts of capital gains and tax were recorded in the 2024 to 2025 tax year. The total gains reported were £127 billion, marking an 82% increase from the previous year, while the total CGT liabilities were £24.2 billion, an 89% increase.
In this instance, the government did increase the main rates of CGT with immediate effect, from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for those paying the higher- or additional-rate. However, the more dramatic predictions did not materialise.
For anyone who was already planning to sell an asset, bringing the disposal forward may have been a sensible decision. But the episode also illustrates the difficulty of making major financial decisions based on rumours of an upcoming change.
People who sold off assets may have accepted an unfavourable price, lower than what they would have otherwise settled for as they attempted to beat the upcoming tax hike. However, without knowing what those tax hikes would be, it’s impossible to know what to settle for to ensure the highest final figure.
This demonstrates the key points regarding making plans based on Budget rumours and speculation:
- You may get lucky and benefit from pre-empting the Budget
- You might act on rumours and regret it, ending up worse off after decisions based on speculation that didn’t come to fruition
- The most effective approach is to wait for the Budget to happen and then plan around definitive knowledge rather than speculation.
A financial planner can help you ensure the best outcomes once the Budget has been delivered
The Budget may bring changes to tax rates, allowances, and pension rules, but the impact will vary from person to person. Rather than acting on speculation, a financial planner can help you understand what the changes mean for your circumstances and identify the most appropriate steps to take.
To speak to a financial planner, get in touch.
Email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.