27 August 2024
Following Keir Starmer’s latest speech it looks likely that there will be changes to the tax landscape in October. While it is never wise to plan your finances based on guesswork surrounding what might be announced in the coming weeks, there are certain financial planning points that can help you shore up your finances and be as prepared as possible for any eventuality.
Below Ian Cook, chartered financial planner at Quilter Cheviot details some of the rumours and how individuals might be able to take sensible proactive steps to manage their finances effectively:
Understanding potential changes to capital gains tax (CGT)
"One of the most talked-about potential changes is an increase in capital gains tax (CGT). If you hold assets that have appreciated significantly, such as property or investments, it may be worth considering the timing of any sales. While it's important not to make rash decisions, understanding how CGT works and anticipating possible changes can help you plan more effectively.
"For instance, if CGT rates are expected to rise, it might make sense to realise some gains now, before the changes come into effect. However, this decision should be made carefully, weighing the current market conditions and your long-term financial goals. If you’re unsure, consulting with a financial adviser can provide clarity on the best course of action as you should not damage your financial position simply to mitigate against tax changes."
Maximising ISA allowances
"Individual Savings Accounts (ISAs) offer a tax-efficient way to save and invest, and with potential increases in other taxes, fully utilising your ISA allowances is more important than ever. Each year, you can invest up to £20,000 in ISAs without paying any tax on the income or capital gains these investments generate.
"Consider whether you’re making the most of this allowance, especially as other tax benefits may be reduced in the budget. Stocks and Shares ISAs, in particular, can be an excellent tool for long-term growth, offering a shield against capital gains tax. Similarly, while cash interest rates are set to come down, ensure that any savings you have outside ISAs are not inadvertently getting taxed. Moving cash savings within the shelter of an ISA can help you save money over the long term."
Reviewing pension contributions
"Pension tax relief is another area that might see changes. There have been discussions about altering the rate of tax relief on pension contributions, which could affect how much you can save tax-efficiently for retirement. Currently, higher-rate taxpayers benefit from pension tax relief, but this could change if a flat rate is introduced.
"To prepare, consider maximising your pension contributions under the current system, especially if you are a higher-rate taxpayer. This is particularly relevant if you're close to retirement and want to boost your pension pot before any changes are implemented. However, keep in mind that pension contributions are subject to the annual allowance, so be sure not to exceed this limit. Also don’t make knee jerk decisions as changes to this area of the pension tax landscape would need significant consultation that would take months if not years."
Considering the impact on inheritance planning
"Changes to inheritance tax (IHT) could also be on the agenda, with potential reforms that might close existing reliefs or increase tax rates. If you’re planning to pass on significant assets, it might be beneficial to review your estate plan now.
"Consider making use of current IHT exemptions, such as annual gift allowances, and explore options like setting up trusts to manage and protect your wealth for future generations. These strategies can help reduce the tax burden on your estate, ensuring more of your wealth is passed on to your heirs especially if the rates are raised or thresholds lowered come October."
Staying informed and flexible
"Finally, the key to effective financial planning in the face of potential budget changes is staying informed and flexible. While it’s essential to prepare, it’s equally important not to make hasty decisions based on speculation. Keep an eye on official announcements and be ready to adjust your plans as more details become available.
"Consulting with financial professionals can also provide valuable insights and tailored advice, ensuring that your financial strategy is robust enough to weather any changes.
"While the upcoming budget may bring some unwelcome news, by planning ahead and making the most of existing allowances and reliefs, you can protect your financial future and continue to grow your wealth, no matter what changes are on the horizon."
