Inflation remains the main battle for your finances

A day before the fall statement, official data showed that UK inflation reached a 41-year high of 11.1 percent. It was therefore no surprise that Chancellor Jeremy Hunt said his main objective was to help the BoE overcome domestic rate hikes – which are expected to remain at 7.4 per cent next year.

But this only serves to highlight the lack of inflationary lifts in tax breaks for savers and investors. The chancellor seems to believe that anyone with excess savings is in the category he describes as having the “broadest shoulders” – thus justifying his cuts to dividends and capital gains tax provisions.

Does this determine the trend to reduce our valuable provisions? I’m afraid.

The standard lifetime pension allowance has been £1,073,100 since 2020 and remains frozen – penalizing successful investment strategies as well as those who have committed to contributions. Similarly, the annual pension allowance has stalled at £40,000 since 2014, and the annual Individual Savings Account allowance of £20,000 has not increased since April 2017.

If you don’t get an inflationary salary increase, you will protest. And it must be the same with the allowances offered to help you pay your way into retirement. So write to your deputy.

Meanwhile, if you didn’t manage to clean up your finances in the spring or summer, fall can be a good time to take stock, mitigate the damage from ice tax grabs and hidden freezes, and consider how to prevent inflation from corroding your car. money.

On the other hand, the tax situation is not as bad as it might seem – allowances remain generous and HMRC stats show they are rarely used to extremes. In addition, the chancellor has succumbed to pressure on the bedrock of retirement income: the triple state pension reinsurance, which means benefit will rise 10.1 percent in April.

But there are no guarantees that the triple lock will be untouched for a second year. Although the Bank of England has forecast that inflation could fall to 7.9 per cent by the third quarter of next year, keeping the triple lock in place for 2024 will still be costly. If inflation remains high, I can’t see how giving inflation-related increases to pensioners is sustainable when you’re beating nurses and other public sector workers for the equivalent.

And while the counselor gives with one hand, he takes (some) with the other. Freezing income tax limits at a time of high inflation is a subtle way to raise taxes for all age groups.

The combination of a state pension rising to £10,000, plus inflation-related rises for public and private sector pensions in the workplace, means that at least half a million people over the age of 65 will have to pay income tax, according to the LCP’s calculations.

Meanwhile, there is a government revision of the pension age in January 2023. Anyone under 50 should expect to push the state pension start date to 70, and in the case of people under 45, perhaps age 75.

All the more reason to invest now to bridge the gap. and use Isas, which not only protect the savings from dividend and capital gains tax, but also won’t be taxed in retirement.

If you are well off or receive a windfall, remember to use your spouse’s benefit too, and consider the Young Children’s Allowance – which is £9,000 a year.

Investors with taxable investments can use Bed and Isa facilities — to sell them tax-free and then reinvest via tax shelter — to mitigate reductions in capital gains and dividend allowances. In addition, taxpayers with higher rates can transfer taxable investments to family members in lower tax brackets.

All those nearing retirement should consider maxing out their retirement contributions, too, because upfront tax relief generates a return on investment that can help beat inflation.

High-rate taxpayers still benefit from the full upfront tax credit on pensions — so use it while it lasts, as a flat rate of 30 percent for all has been discussed as a way to treat low earners more fairly.

Also ask for a pay rise — and remember, anything less than inflation will have a negative impact on your retirement contributions, including those from your personal income and from the government and your employer.

High inflation means you could see the value of your cash savings eroded as well – so make sure your deposits are working as hard as you can. Savings comparison site Moneyfacts.co.uk chose Union Bank of India (UK) Ltd’s 18-month fixed deposit, paying 4.55 per cent, and Gatehouse Bank’s 120-day notice account, paying 3 per cent. Another way to keep up with changing rates is to use a savings platform, such as Hargreaves Lansdown Active Savings.

But despite the tough times the markets are in, a new survey by Interactive Investor shows that more than two-thirds (67 percent) of investors think now is the right time to invest.

Hargreaves Lansdown says it has seen increased interest in resources and energy funds that are benefiting from higher commodity prices. The main fund sector in the month prior to the fall statement was North America.

Meanwhile, the FTSE 100 provides exposure to sectors that are showing resilience in tough economic times, such as consumer staples, healthcare and utilities. Large British companies in these industries look cheap compared to historical valuations and those in other developed markets. Many of them provide a high yield of profits as well.

In theory, some assets offer built-in inflation protection – for example, infrastructure, property and index-linked bonds. However, the danger is that any benefits of inflation-related income are undermined by their prices being “lowered” by higher interest rates.

So, if you already have a well-curated investment portfolio that is diversified by sector, geography, and asset classes, I will ignore the market noise, keep calm and carry on.

Focus on what you can control, such as the cost of what you pay for the investment. Moving to cheaper funds and low-cost investment platforms can greatly increase returns when savings are compounded over several decades. It can be the most powerful weapon in the fight against inflation.

But, if your investments fail, you may reconsider your plans to leave an inheritance. Many millennials would prefer their parents focus on keeping cash reserves to fund a comfortable retirement and help with the cost of living, rather than spending too much.

Or consider downsizing. Halifax says moving to a smaller one-bedroom home will, on average, raise £120,820. This is a useful safety net if future tax policies cause more pain for your finances.

Moira O’Neill is a freelance finance and investment writer. Twitter: @employeeInstagram @employeeE-mail: moira.o’neill@ft.com

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