Issue 131
COMMENT
A time of change?
We now have a Labour Government, with a significant majority in Parliament. What might this mean for savers and investors looking to grow their wealth and not pay unnecessary tax? With the next Budget planned for the autumn, what do we know now? During the election campaign Labour committed to retaining the state pension triple lock and said there would be no rises in Income Tax, National Insurance or VAT. Currently, income tax bands are frozen until April 2028. Since the thresholds were frozen, 4.4 million more people have become liable to pay more tax, including an extra 2.1 million people who now pay basic rate tax and 1.88 million higher rate tax. Those moving into higher rate bands lose some of their personal savings allowance. They also pay higher rates on dividends and capital gains. Key taxes missing mention in the Labour manifesto and campaign were Inheritance Tax and Capital Gains Tax. This could mean they are areas being considered for change. Another area that has been flagged is pension tax relief, which is costly for Government and could be a target for reform. The Autumn Statement will no doubt bring greater clarity on these issues. What does this mean for Lowes clients? It’s business as usual, as whoever was elected, the savings and investment fundamentals remain the same. We see no need for any significant changes to financial planning or investment strategies. We will, of course, be keeping a close eye on any announcements so that we can advise clients accordingly. It is as important as ever to make use of our personal tax allowances, such as pension and ISA tax wrappers, particularly any carry forward for pensions from previous years, if applicable. It is often prudent to use these early in a tax year, particularly so in a year where changes to allowances could be introduced. Your Lowes adviser can help you understand the best options for your financial planning needs. However, looking forward, we see one of the pressing tax and planning issues as intergenerational wealth transfer. Estimates are that around £5.5 trillion will be passed down through the generations between now and 2050. Not surprisingly, inherited wealth has increasingly been a target for tax takes from successive Governments. The IHT nil rate band, the level below which no IHT is paid, has been frozen at £325,000 since 2009 and will remain frozen until April 2028. The Treasury’s IHT receipts have been increasing every year as a result, with more people affected by this tax. The Treasury’s IHT tax take for the 2022/23 tax year was £7.5 billion. The Office for Budget Responsibility has predicted this will reach £9.7 billion a year by 2028/29. So, it is ever more important that anyone with an estate valued over the nil rate band seeks professional advice.
The creation of Wills and trusts and gifting, as well as pensions death benefits are ways to help mitigate IHT. But it is not simple financial planning, especially if we want to retain some control over where our wealth goes and when. The order and timing of wealth transfers to the next generation can notably affect the amount of tax paid. What we want to avoid is beneficiaries handing over far more of their potential inheritance to the taxman than they need to. If you or someone you know would benefit from professional advice on financial planning matters, Lowes is here to help. Ian H Lowes, Managing Director
Lowes.co.uk
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