Financial planning is based on forecasting future cashflows using reasoned and reasonable assumptions and making recommendations so that clients can achieve their goals.
It is not based on complete guesswork. We can only advise on the rules and legislations that exist now. With this very large caveat however, are there any actions we may consider taking, ahead of Labour’s first budget on October the 30th?
The chancellor Rachel Reeves stated on July of this year that the UK Is facing a series of “incredibly tough choices” as the government tries to plug a £22bn hole in the country’s public finances.
“There will be difficult decisions around spending, around welfare and around taxes” Reeves said while insisting that “working people” would be spared increases in income tax, value added tax and national Insurance, which was a key electoral pledge. Starmer has called the upcoming budget “painful”.
Given the tax increases that have been ruled out, it’s not unreasonable to assume that there may be increases in Capital Gains Tax, Inheritance tax and tax relief for pension contributions among other measures. These may be announced on October 30th and implemented at the beginning of the next tax year (April 6th 2025). But they may also be effective from October 30th to prevent any mitigating action.
Taking very important decisions which have possible negative outcomes such as withdrawing tax-free cash from pensions, or liquidating everything in taxable accounts on the back of speculation is unwise in our view.
However certain tax year end housekeeping actions could well be brought forward to now. For example,
– Funding pension contributions up to this year’s annual allowance
– Funding any unused pension allowances from the three previous tax years to this one (using the carryforward rule) if you have sufficient earnings this year
– Bed and ISA- if you have investments in a general account “pregnant” with capital gains – sell £20,000 of them or £40,000 for a couple and fund your ISA for this tax year
– Bed and Pension- similarly selling your investments in your general accounts to fund this year’s pension contributions
– If you have large stock positions in your employer accumulated from RSU’s or other equity based compensation that have capital gains and you have been meaning for a while to sell, reinvest and diversify these investments to reduce stock specific risk you could consider at least starting this now.
– Transfer stock, and investments in taxable accounts to your spouse who may be a basic or non-taxpayer to take advantage of their allowances and lower tax rates.
Once again, let us reiterate, we have no idea what the fiscal measures on October 30th will be. But these actions do no harm and may save money.
We are not offering specific advice in this post, and clearly everybody’s situation, risk tolerances and goals are different. For advice specific to you, please reach out to us.
• The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
• The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
• This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
• The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.
