‘I’m a pensions expert – here’s how to protect yourself from Labour tax raid’ | Personal Finance | Finance

Rachel Reeves hiked taxes by a whopping £26billion in the Budget. This included freezing thresholds on income tax for another three years, which will drag more people into paying higher rates.

Owners of properties valued at more than £2million will have to pay a surcharge of £2,500 on top of their council tax bill. This rises to £7,500 for anyone with a property worth £5m. The Chancellor also capped the amount workers can add to their pension pots under “salary sacrifice” schemes at £2,000 whereas currently there is no limit.

Former pensions minister, Steve Webb, now a partner at Lane Clark & Peacock LLP, has offered five tips to minimise the impact of Ms Reeves’ Budget.

Firstly, Mr Webb, writing in This is Money, recommended maxing out your state pension with credits. He advised claiming free “credits” to those under state pension age who aren’t working.

To receive a full state pension requires 35 years of National Insurance contributions. Despite not earning, you can still receive credits for your NI record.

Mr Webb also recommended using the marriage allowance to claim the tax free amounts you are entitled to. Marriage allowance lets you transfer £1,260 of your personal allowance to your husband, wife or civil partner.

Your personal allowance is the amount you can earn before you pay tax. This transfer reduces their tax by up to £252 in the tax year.

To benefit as a couple, the lower earner must usually have an income below their personal allowance, which is usually £12,570.

When you transfer some of your personal allowance to your husband, wife or civil partner you might have to pay more tax yourself, but you could still pay less as a couple.

You can’t claim marriage allowance if you are living together but are not married or in a civil partnership.

Mr Webb’s third suggestion is to claim higher rate tax relief on contributions. He said if you end up paying higher rate tax the money you add to a pension will earn more tax relief.

Higher and additional rate taxpayers earn 40% and 45% tax relief on their pension contributions. This compares to 20% for basic rate taxpayers.

Some schemes mean you automatically receive basic rate relief, but you have to tell HMRC about your pension contributions to apply for the extra relief.

Next, Mr Webb said you should consider voluntary National Insurance contributions to top up your record if you are short of a full pension and are certain you are claiming all your free credits.

He said topping up isn’t right for everybody, but you can fill gaps going back up to six years.

Lastly, the pensions expert recommended making the most of salary sacrifice, despite Ms Reeves’ £2,000 cap.

Mr Webb said when the cap starts, salary sacrifice could still be “advantageous” because you look as if you have a lower salary than you actually do. He said this could make you eligible for benefits you would otherwise lose.

The expert suggested talking to your employer about what the advantages might be in pursuing salary sacrifice.