HOW WILL THE NEW GOVERNMENT CHANGE TAXES & PENSIONS?

At the start of July, Labour ended 14 years of Conservative rule in the UK. Since then, I’ve barely gone an hour in the day without hearing, “Are they going to put capital gains tax up?”, “What are they going to do?” and similar, crystal ball questions.

All crystal balls are cloudy. This one more than most. Labour have said there will be no increase in income tax, national insurance contributions (NICs) or VAT. But they’ve been very quiet on pensions, capital gains tax (CGT) and inheritance tax (IHT) – three big topics for our clients at Cooper Parry Wealth.

Ultimately, there’s a hole in the UK’s numbers and tax has got to be raised from somewhere. CGT could be increased to do that, and the main worry for clients is capital gains being taxed at the top rate of people’s marginal income tax rate.

Labour has a bit of a tightrope to walk with CGT though. It’s still a voluntary tax because the government can’t force you to sell assets. And if they put the rates up too far, people will sit on assets and wait it out. What’s more, Labour needs to encourage people to take risks and invest in business to stimulate the growth of the UK economy.

Rachel Reeves has said Labour’s first Budget will at the earliest be in September, giving the OBR their 8 weeks’ notice to run their fiscal projections; but it’s possible it could slip to October.

We also don’t know whether any tax changes would come in overnight on Budget Day or from the following 6 April, giving time maybe to bank capital gains at current tax rates,  a favourite tactic of HMRC to accelerate the tax take. So, don’t rush into decisions. Think carefully about what you’re doing in your circumstances. But if you’ve got assets with capital gains and you’ve decided it’s a good time to offload them, there’s no downside to getting on with it sooner rather than later.

HOUSEKEEPING TIPS

Labour could tinker around with IHT rates or some of the reliefs, but any decisions you make should be based on your own circumstances and with appropriate advice, rather than in haste based on what might happen down the line.

If you’re already considering making gifts to family, particularly of large amounts, it makes sense to get on with it now. But, as with selling assets, don’t make dramatic decisions if you haven’t already decided.

Keep funding your ISA allowances and do so before the Budget where you can. While theoretically possible, we think it’s unlikely Labour will attack them, but they could withdraw or reduce the allowance.

Income tax relief on pension contributions is something that could be in the crosshairs. It’s cost the Exchequer a lot of money. Rachel Reeves has effectively ruled out bringing back the lifetime allowance, so they could look at the level of tax relief. It would be a bold move, but they could restrict tax relief on pension contributions to just the basic rate. So, if you’re making pension contributions, get on with them over the next few weeks before the Budget if you can.

Other aspects on pensions may also be in the crosshairs, particularly the exemption from IHT. There’s little that can be done on this and we wouldn’t recommend dying before the Budget! Again, if changes are made, we would advocate taking your time and talking through the impact with your adviser.

Many clients have also been interested in Labour’s stated policy to introduce VAT on private school fees. We now know that 20% VAT on private school fees and boarding will apply from January 2025, and it’s important to note it will also apply to pre-payment of fees (applicable on or after 29th July 2024). 

PATIENCE PAYS

The best decisions are made at the correct time, with all the relevant information at our disposal. Before the Budget announcements later this year, our crystal balls are clouded over.

As soon as we know more, we’ll be arranging catch-ups and sharing all the information and advice you need. Until then, patience could be the best course of action, and if you want to discuss any of these topics with your Relationship Manager, don’t hesitate to reach out.

Get in touch with the CPW team today.

This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.

Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.

Cashflow planning, tax advice and estate planning advice are not regulated by the Financial Conduct Authority.