A new UK government: planning for long-term change

The crystal ball gazing can stop, the votes are counted and we have the much-anticipated significant Labour majority in the UK Government. There appears to be some certainty finally; so what now for your personal, family or business finances?

Ahead of 4 July, much was said about the potential tax or legislative changes that may follow a change of colours at Westminster. But now that we have certainty for at least five years, (or possibly 10+ years, given the size of the majority), where should you focus your attention?

We can take some time to breathe and think, as it has been confirmed that there won’t be a formal Budget until the autumn; potentially late September, but more likely October, it seems.

However, “tempus fugit”. The next 9-10 weeks will fly by quickly – so now is the time to plan and act. Aside from some general commitments in the Labour manifesto not to raise income and corporation tax, national insurance, or VAT, there was little detail, apart from one firm action to remove the charitable status of private schools, with VAT being added to school fees as a result. This has been re-stated in recent days, so anyone already sending, or planning to send, their children into private education will ultimately need to set aside more money for this.

Our financial planning team can create or update your Lifetime Wealth Model to see what this may look like for you, helping you to plan.

This exercise on school fees won’t raise that much for HM Treasury in the grand scheme, so with the now-Chancellor of the Exchequer Rachel Reeves, having stated post-election that “there is not a huge amount of money there”, where will the funding for Labour’s plans come from? We feel there are three key areas likely to feature:

Capital gains and dividend taxation

Reeves has previously commented on the need to examine the differential taxation of earned vs unearned income. This points to increases in the historically low capital gains tax rates, and possible equalisation of dividend tax with income tax rates. This could have a significant effect of those using ‘unwrapped’ taxable investment portfolios to support lifestyle or future plans.

Look to review these portfolios urgently with your adviser, and consider acting ahead of any changes that may be announced. Note also that the Chancellor has commented on the need to simplify tax-free ISAs. Whilst there is a need for this – given the range of options available – this could also signal changes to annual allowances or a limit to overall ISA savings.

It’s important to note that taxation is dependent on individual circumstances and, as I’ve mentioned, may be subject to change, so it’s important to get the right financial advice.

Pensions

Comments from the Labour front bench when in opposition indicated a reversal of the abolition of the Lifetime Allowance (LTA) for at least some of those with significant pension savings.

Although this may be off the table in the immediate future, we should consider the possibility of changes within a five-to-10-year tenure of the now incumbents; expect to see announcements of a review of pension taxation in the short term. Pensions remain a highly tax-efficient way of both saving and then passing funds on after death.

Maximise your planning opportunities now whilst we have a known and generous rulebook.

Inheritance tax

Abolishing non-domiciled status is already on the radar, and much was made in pre-election statements of abolishing tax loopholes. Inheritance tax (IHT) is one area where Labour has considered previously that many such ‘loopholes’ exist, including seven-year gifting, death-bed planning, the exclusion of pensions, and so on.

With a generic ‘Wealth Tax’ seemingly also off the table for now, changes to IHT allowances or rates would be an easy option to extract extra revenue, and significant extra funds have already been committed to HMRC to add to its capacity to check and chase down tax avoidance too.

If planning for the next generation is high on your priority list, reviewing your arrangements here is a must-do, ahead of the autumn Budget.

As always, Financial Freedom is an individual thing. What does it look like for you? If you’re unsure, or have specific concerns on any of the above, please pick up the phone or reach out to your adviser.