Budget speculation is fuelling fears of tax changes

When former Labour trade and industry secretary Peter Mandelson famously said that he was “intensely relaxed about people getting filthy rich” on a visit to silicon valley in 1998, he was speaking in the aftermath of a landslide election victory a year before. 

So in the relatively short time since Keir Starmer swept into government in July, what can we conclude about this Labour government’s approach to wealth?

Guiding ambition

Will the Government raise taxes?

Whilst the new government has promised as one of its guiding ambitions ‘to make Britain the best place to start, and to grow, a business’, it has also made it clear that we can expect higher taxes and greater business regulation, with the Prime Minister telling us that things are likely to get worse before they get better. Exactly how it proposes to raise the money it will need to pay for its plans has been the subject of intense speculation, and there is no doubt that it has made some of our clients very concerned. Labour’s first budget has been scheduled for 30^th October, and Chancellor of the Exchequer Rachel Reeves has promised to set out her fiscal plans in full alongside a spending review in her Budget Statement on that day.

Many questions

Our financial planning team have handled a range of questions from clients prompted by the forthcoming Budget, including whether their pension is likely to be taxed, whether the tax-free cash option is going to be withdrawn, whether the lifetime allowance is going to be reinstated, and whether there will be an immediate change to state pension age.

People also want to know whether capital gains tax is going to rise, whether inheritance tax is going to increase, whether the state pension is going to be means tested. They are worried about income tax rates, child benefit and changes to ISAs. Our business clients are concerned about rising employer National Insurance costs, and increases in business rates.

According to reports in the media, some wealthy people have even decided to leave the UK in the expectation that the changes are going to be so damaging that it will be unattractive to remain here. Whilst we haven’t had any clients who have taken this drastic step, it is natural to want to try to preserve your wealth in the face of a potential financial onslaught.

All or nothing

The difficulty, of course, is that some of these things could happen, or none of them could happen. Only the Chancellor and her team know what changes are planned and who is likely to be affected. Whilst it is tempting to swing into action to avoid the effects of any possible government action, it’s equally likely that making changes to your financial plan in anticipation of an unknown change could be equally, if not more, damaging.

If you want to feast on the uncertainty and speculation that is continuing to build around what the Chancellor might do, a cursory search on the internet will yield you plenty of material on which to dwell and hypothesise (for a more measured analysis of possible changes accountancy firm BDO have put together a useful commentary here).

But our advice as your Financial Planner is to turn off the news and wait until you know with certainty what is changing and how it will affect you before you start making changes to your portfolio. Don’t allow yourself to be sidetracked from your Plan by speculation that could end up doing more damage to your wealth than anything in the Budget when it comes.

The only caveat that we would make is that if you are already planning to take specific actions in the next few months, bringing them forward could give you the certainty that current tax rules will apply, regardless of any changes in the Budget. Examples might include raising money by selling assets that will be subject to capital gains tax, or topping up your pension with a further contribution. Your financial planner will be able to guide you if you think you’re in this position.

The difference with these actions is that you’re taking advantage of rules that already exist based on a known requirement, and it’s highly unlikely that any changes that the Chancellor makes will be applied retrospectively. But making changes simply on the strength of the possibility that there may be a change when we can’t possibly know if that’s true makes no sense.

If you have specific questions or concerns that you feel you need to share, we’re always available and will help you to make good decisions. Just give us a call. We are here for you, now and after the Budget (and the next, and the next…).