With the new Prime Minister’s Budget just around the corner, there is intense speculation about what may or may not be on the table.
While Keir Starmer and Rachel Reeves made various fiscal promises and commitments not to raise certain taxes, Andy Burnham and John Healey could override their predecessors.
Of course, whether they will or not remains to be seen. Indeed, rumours are a common feature of Budgets. Still, it is generally a good idea not to react until the outcomes are clear, and there have been several occasions where responding to speculation would have left you worse off.
Read on to learn about why reacting to Budget rumours has not historically been a good idea.
A large pension withdrawal could cost more than you expect
Budget speculation has a history of influencing pension decisions.
For example, in the run-up to the 2024 and 2025 Budgets, there were rumours that the government might reduce the 25% tax-free lump sum on pensions.
Many people responded by withdrawing money from their pensions before any changes were announced to preserve the tax-free portion. According to International Adviser, £3.9 billion was withdrawn as lump sums from defined contribution pensions between Q4 2024 and Q3 2025. That was £868 million more than during the previous 12-month period.
However, the feared cut to the tax-free lump sum never came to fruition. This meant that many of the people who had withdrawn money were left with significant amounts of cash no longer invested in a secure, tax-efficient environment.
Once money has been taken from a pension, it typically can’t be returned. Moreover, withdrawn funds held in cash may be vulnerable to inflation, and even if you reinvest them, the returns may not be tax-efficient.
Indeed, even if the reduction in the tax-free lump sum had materialised, there may have been more considered and efficient methods of ensuring you kept more of your pension savings.
Rushing a business sale could leave you worse off
Before the March 2020 Budget, there was widespread concern that Business Asset Disposal Relief (BADR) would be scrapped. If that had happened, business owners selling their companies or business-related assets would no longer benefit from the £10 million lifetime limit and would have faced a much larger tax bill.
In preparation for this, some business owners tried to get ahead of the Budget by bringing forward their business sales to use the relief before it potentially disappeared.
In the end, the government did make changes to the relief but stopped short of abolishing it and cut the lifetime limit from £10 million to £1 million instead.
While this still marked a considerable reduction, it was less severe than the abolition many had feared. Indeed, only around one in five people who could claim the relief were expected to be affected by the new limit.
For business owners already preparing for a sale, pushing forward the transaction may have made sense if it meant securing the more generous rules.
However, the risk comes when the speculation becomes the reason for selling. Bringing forward a business sale is a major decision, and trying to lock in a tax relief can distract you from other considerations, such as the value of the business and the timing of the exit.
This can lead to disadvantageous outcomes, such as selling at a lower price or rushing an exit without a clear plan. And, considering most business owners weren’t affected by the reduction, many may have been left worse off by responding to speculation.
Occasionally, responding to speculation could be beneficial, but this relies on chance and there are considerable risks
It would be untrue to say that responding to Budget speculation is always bad. However, it’s important to note that good outcomes rely on chance, and it is always less risky to respond once you know the full picture.
For instance, in the run-up to the October 2024 Budget, there was widespread speculation that Capital Gains Tax (CGT) rates could rise sharply and may be aligned with Income Tax rates.
The rumours had a significant influence on behaviour, as HMRC figures show that £127 billion of capital gains were reported in the 2024/25 tax year, an 82% increase on the previous year. CGT liabilities also reached a record £24.2 billion, up 89%.
The Budget did end up including a tax increase, and the main CGT rates rose with immediate effect. But the most dramatic predictions did not happen.
So, if you were already intending to sell an asset, completing the transaction before the Budget could have secured the more favourable tax treatment.
However, as with the BADR speculation, the situation was different if you sold purely because you feared what might be announced.
Trying to beat a tax rise can create different kinds of risks. For example, you might accept a lower offer, sell during unfavourable market conditions, or give up future growth to avoid a tax charge that turns out to be smaller than expected.
When the details of a Budget are unknown, it is impossible to know in advance whether selling today will actually leave you with more money in the long run. So, it is always best to plan once you have certainty.
A financial planner can help your wealth remain efficient once the Budget has been announced
Budget speculation can make it tempting to act early, particularly when a potential tax change could have a significant impact on your finances. Sometimes that pays off, but as the examples above show, acting on rumours can just as easily leave you worse off.
Waiting for the Budget to become fact can give you a much stronger foundation for deciding what to do next.
A financial planner can help you understand any changes in the context of your wider financial plans. They can then recommend a course of action that can help keep your wealth efficient in light of the changes.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
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.
