Published On: Fri, Jul 5th, 2024
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Savers race to protect their wealth by doing this as Labour tax raids loom | Personal Finance | Finance

PM Starmer and new chancellor Rachel Reeves have said they won’t increase income tax, national insurance or VAT, or restore the pensions lifetime allowance. However, we’re in the dark over which taxes they will raise.

Many expect Reeves to increase capital gains tax (CGT) when she holds her first Budget, probably in November.

She may also hike inheritance tax (IHT). We just don’t know.

And we’ve absolutely got no idea what the Labour Party is likely to do with our pensions.

Options include slashing tax relief on contributions, imposing IHT on unused pension when we die, and scrapping the 25 percent tax-free lump sum.

Savers aren’t taking any chances. They don’t want to get caught out by a snap tax raid, which could cost them thousands.

New research shows they are particularly worried about their tax-free pension lump sum.

Currently, every pension saver can take 25 percent of their total pot entirely free of tax, up to a maximum of £268,275.

It’s a hugely valuable and popular benefit.

The remaining 75 percent of pension withdrawals are added to their total earnings for that year, and subject to income tax.

Taxing 100 percent of people’s pension pots would be a mighty blow. Savers are taking evasive action.

The Pure Gold Company reports a massive 43 percent increase in people purchasing physical gold coins and bars over the last seven days.

Gold has been a store of value for more than 4,000 years and many have been seeking safety ahead of the Labour landslide.

Chief executive Josh Saul said people are piling into gold because they fear Reeves may unleash stealth tax raids on capital gains, inheritances and pensions.

Many wealthy investors are selling assets such as art, cars and houses ahead of the anticipated CGT hike.

There are tax benefits to switching these assets into gold, Saul said. “UK gold coins minted by The Royal Mint are both CGT and VAT free, depending on individual circumstances.”

There is another notable trend.

Saul also reports a thumping 32 percent increase in the number of people buying gold with the money raised by crystallising their pensions tax-free lump sum.

“While Labour’s plans for changes to pension policy are not yet clear, some clients have been impelled to act urgently in case Labour changes tax-free lump sum pension cash rules.”

By taking their tax-free cash today, they hope to escape a Labour tax raid in the autumn.

Saul said: “They are looking for a physical asset class that sits outside of the banking system, that is capable of being converted into cash quickly, and has tax benefits.”

This shows the state of panic about Labour tax hikes, but in my view, people need to think this decision over.

We do not yet know whether Labour will axe the tax-free lump sum. It would be an incredibly unpopular move, hitting millions of pension savers.

Starmer and Reeves may decide it’s more trouble than it’s worth.

Even if it does happen, Reeves might choose to lower the £268,275 cap rather than axe tax-free cash altogether.

That way, only those with larger pots will get caught out.

Personally, I think Labour is more likely to introduce IHT on pensions than scrap tax-free cash. But that’s just a hunch. I don’t know.

Money in a pension rolls up tax-free so you don’t want to lose that benefit by withdrawing cash before you really need it.

Gold has had a brilliant run, with the price up 500 percent in the last 20 years, to today’s price of $2,380 an ounce.

But the gold price can be volatile. It has crashed before and could crash again. Also, gold pays no interest.

It’s a knife-edge decision.

So think it through. Take advice. Don’t panic.

But as the first Labour Budget looms, pension savers are right to be looking to protect their wealth. Here are five other things to consider doing to save money under Labour.

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