Category: General

Yesterday the prime minister made a statement that implied that the budget will not be great on people, due to the supposedly black hole of £22 million, left by the previous government.

I enquired with my financial advisor and this is what I got back.

“Yes, I’m sort of concerned about what’s coming up in late October. Although I’d hope most of those changes will take effect from 6th April to give people fair warning (and in doing so causes a lot of activity which benefits the Treasury and the economy very quickly). I was at a seminar last week and a number of things were discussed;

Pension Tax Free Lump Sums; This was lower down on the agenda, but I agree this feels a target. 25% of £1,073,100 is the current maximum allowed. I worry that a much lower cap could come in. However, they hate to change rules on previously saved money, so for example every time the Lifetime Allowance was reduced this last 20yrs the deal was you could opt to cease contributions and retain the old allowances. That would suit many people I advise. Maybe they just introduce a lower lump sum cap on newly saved money from April 2025 onwards? It will become more complex that’s for sure! I really very much doubt an announcement in the late October Budget where they say ‘tough luck, as of today the cap for everyone is now lower’. They’d surely give people until April 5th. I wouldn’t normally advise anyone to take it early and nobody else is doing it.

The other things that came up;

• Capital Gains Tax; I think it’s an open goal that these move to marginal rates of 20%/40%/45%. Possibly the annual exemption recovers a bit back to normal levels because this has caused admin in HMRC a lot of pain.

• Pension Death Benefits; this is a big concern for me, another sort of open goal. Back in 2015 we had a 55% ‘death tax’ charge on pensions left on death (not when to spouse’s). That had meant financial advice was driven to getting money out of pensions (withdrawals had an annual limit) so that it caused less tax on death (i.e. Inheritance Tax is only 40%). Pension Freedoms and some ideas to encourage pension saving meant George Osbourne removed that charge entirely. I worry that the charge gets reintroduced (poss at 40%) it would be simple and not require major law changes. We would just have to stomach it, as there’s little way around it and it would basically impact an eventual legacy very significantly.

• Pension Tax Relief; there’s talk of changing to a flat 30% to encourage basic rate taxpayers and limit tax relief to higher rate taxpayers. This is not without some major issues though, so complex new rules for things like public sector final salary schemes will need introducing. The pensions industry was consulted on this and the responses were; yes it is possible, but we need 2 years to adapt. I think this looks possible.

• Current restrictions such as the annual allowance have really lowered tax relief successfully this last 7-8 years, actually making this less of a concern to the Treasury than it was becoming. Things have basically been working okay for the Treasury recently. However, a recent relaxation last year by the Tories could get reversed easily and mean maximums get reduced back down from £60,000pa to £40,000pa and also the ‘Tapered Annual Allowance’ reduces back down a lot. However, this hurts Doctor’s the most, so the Government might want to avoid that fight having only just got the most recent industrial action resolved.

Lastly, every time the Government writes a review for potential pension rule changes, the Treasury document is often quite balanced in that it doesn’t see tax income improving very quickly, plus the current rules have been successful in encouraging people to save for their own retirement and rely less on state benefit support. The new Government is getting advised by the same civil servants and Rachel Reeves is smart (in my humble opinion!) and she wants to encourage growth not damage it.”

Well were see what happens in October, I just have a feeling it won’t be good.