Financial Planning Client Update
As expected, the Labour party won the General Election on 4th July although the size of their majority exceeded expectations. Given the size of the majority, it is likely that we are now entering a period of political stability and from an investment perspective, the importance of a stable government should not be overlooked.
The political instability and uncertainty during the last parliament, which resulted in three prime ministers and five chancellors, made it difficult for companies and investors to anticipate policy changes and plan for the longer term.
In the immediate term Labour inherit an economy with some positive momentum, inflation has eased such that interest rate cuts are on the cards for the second half of 2024. Rate cuts would provide a potential boost to real incomes for households and domestically focussed areas of the equity market; however, the structural challenges of an aging population and strained trade relationships means action will need action to make the UK a more attractive destination for foreign direct investment.
Policy Impacts
In terms of policy changes, the election campaign revealed very little new information about the Labour government’s plans. Its stated priority is to grow the economy and provide security and stability. The UK’s public finances are tight and services — from healthcare to prisons — are at a breaking point and the obvious risk from a financial planning standpoint is further tax increases. The new Government has to an extent painted itself into a corner by stating that there would be no increases in income tax if they were to be elected.
Prior to the election, Chancellor Reeves stated that she would request a full financial review from the Office of Budgetary Responsibility (OBR) before her first budget meaning that the first budget is unlikely to take place before September and any significant changes may be deferred to Spring 2025.
Financial Matters Summer 2024
As part of our ongoing service of keeping your informed on financial matters, we are pleased to enclose our latest Financial Matters newsletter which includes articles on: –
• Self-Assessment and how frozen thresholds combined with higher bank interest has resulted in more people needing to file Self-Assessment tax returns.
• An update on how inflation has increased the cost of retirement.
• Do not fall for scams this summer – Be alert to fake websites.
• The cost of long-term sickness
• New HMRC web tool to check your State Pension accrual and identify any missing NIC payments. how you have until 5th April 2025 to going back to April 2006.
Financial Planning Actions
It is important not to be rushed into actions by speculation and rumour and instead focus on the facts and how they impact your personal circumstances and objectives.
Potential financial actions which could be undertaken now to improve your longer-term finances include: –
• Know your taxable income and check whether you have any tax liability for last tax year (2023/24)
• Consider restructuring your investment portfolio – Capital gains tax (CGT) is the most obvious way of levying a wealth tax by another name. Gains on investments held outside pensions and Isas are currently taxed at 20 per cent: historically low for the UK, and relatively low compared to the US and Europe. Now may be a good time to review your portfolio and crystallise gains in advance of any potential increase.
• Use your ISA allowance for 2024/25 tax year now rather than wait to April 2025.
• Consider making employer and employee pension contributions now rather than waiting until the company or tax year end.
• Make gifts of surplus capital and income to your beneficiaries now rather than waiting until your death. “Giving while living” will reduce inheritance tax bills and start the seven-year clock ticking on Potentially Exempt Transfers.
• Equalise assets and income between spouses as far as possible to fully utilise capital gains and income tax allowances.
• Taking out insurance policies to hedge future IHT liabilities. If you are in your 50s or 60s and are in good health, taking out whole of life cover to provide the liquidity needed to settle the eventual tax bill can be very cost effective.
As always, we will keep you informed of any changing legislation and if you have any questions or concerns regarding your financial arrangements, please do not hesitate to contact us.
Yours sincerely
Jonathan, Paul, Alan & Liam
Directors
MBS Independent Financial Planning
