Financial focus winter bulletin
As 2024 comes to a close, we are delighted to share our winter financial focus bulletin from our financial planning team.
This year has brought significant change, including a new UK government and a budget, which introduced some major shifts in taxation. For many, these changes may result in higher taxes, but with proactive and careful planning, we can help you reduce, and in some cases mitigate, the impact on you, your family, or your business.
In this bulletin, we highlight some of the key financial planning considerations to keep in mind as we move into 2025. We have also shared comprehensive insights on the budget on our website, where we will continue to update our analysis as further details emerge over the coming months. What remains clear is that now is an ideal time to review your financial plans to ensure they remain robust and effective considering the changes ahead.
As always, please do not hesitate to contact your usual adviser to discuss your individual circumstances.
This content is provided by Tax Briefs for its expert analysis and up-to-date information on the latest tax and financial planning-related developments.
Hitting the mid 20s – what’s next?
Five years on from the start of the 2020s, it’s time to take stock and look forward.
Think back to 1 January 2020. Boris Johnson had won a December election with a majority of 80 seats. Covid-19 had broken out in China but was almost a month away from being declared a public health emergency of international concern. The Bank of England Bank Rate was just 0.75%.
As 2025 approaches, the picture is radically different. Three prime ministers later, Sir Kier Starmer is now in Downing Street, having gained a majority of over 150 in July. While today Covid-19 is of little concern, its economic consequences remain. As the pandemic took hold, the Bank of England was prompted to cut rates to 0.1% in March 2020. However, from December 2021 rates started to climb, reaching 5.25% before reversing direction in 2024 to their current 4.75%.
Impact of inflation
The reason for the long upward march of interest rates was a pandemic-induced inflationary surge. UK inflation peaked at 11.1% in October 2022, a 41-year high, but is now back to around January 2020’s 1.8%. Inflation’s return to a norm of around 2% is no solace for most people, who feel price rises over longer periods than the 12 months favoured by economists. In the UK prices will have risen by around a quarter in the first half of the decade.
Cumulative inflation, higher interest rates and a changed government mean the backdrop for the second half of the 2020s is substantially different. Have your financial plans taken account of the new landscape? For example, the 2020’s wedge of inflation means the funds you need for a comfortable retirement are correspondingly higher. At the same time, higher interest rates and a harsher tax environment could require a reassessment of your investment approach.
This halfway point is a good time to pause, review and prepare for whatever the next five years might bring.
An uphill climb? Tackling the Autumn Budget outcomes
The first Budget from a Labour government in over 14 years was one for the record books.
“…And the only way to drive economic growth… is to invest, invest, invest.” So said Rachel Reeves, early on in her first Budget on 30 October. The corollary, which emerged later in her speech, was that to invest, invest, invest also meant the government would need to borrow, borrow, borrow and tax, tax, tax.”
There were three major tax highlights.
Employer’s National Insurance contributions (NICs).
There were two main increases and one small mitigation. From 2025/26:
- The main rate will rise from 13.8% to 15.0%.
- The secondary earnings threshold, below which no employer’s NICs are levied, will fall from £9,100 to £5,000 and be frozen until April 2028.
- The employment allowance, effectively an annual NIC rebate, will rise from £5,000 to £10,500. However, this remain unavailable for companies with a single director employee or if the employee is providing domestic services (e.g. a nanny).
Combined with a 6.7% increase in the National Living Wage from April 2025, the higher NICs will mean a significant additional cost for employers, particularly those operating in low wage sectors, such as retail and hospitality.
One notable upshot is that salary sacrifice schemes involving low emission cars or pension contributions will be more attractive from 2025/26 because of the employer NIC savings they offer.
Capital gains tax (CGT)
Changes to CGT proved to be less dramatic than some had predicted:
- The main rates rose from 10% to 18% for basic- and nil-rate taxpayers and from 20% to 24% for higher and additional rate taxpayers, effective from Budget Day. The move brings the rates into line with those already applying to residential property.
- The rate for business assets disposal relief (BADR) will increase from 10% to 14% for 2025/26 and 18% thereafter, while the BADR lifetime limit stays at £1 million.
Some consequences of these increased tax rates are considered later in the newsletter.
Whilst there was no change to the CGT rates applying to residential properties, the speculation in the lead up to Budget Day may have prompted people to sell up. As a reminder, disposals of UK property are subject to different reporting and payment obligations outside the self-assessment system. For UK residents that have a CGT liability and all non-UK residents, the disposal must be reported and any CGT paid within 60 days of completion.
Inheritance tax (IHT)
Like CGT, changes to IHT were widely predicted, and they lived up to, if not exceeded, expectations:
- The nil-rate band (£325,000 since 6 April 2009), residence nil-rate band (£175,000 since 6 April 2020) and its taper threshold (£2 million since 6 April 2017) will all be frozen for a further two years, until 6 April 2030.
- From 6 April 2026, 100% agricultural relief and 100% business relief will be capped at a non-transferable £1 million. Above that level, relief will be at 50%. From the same 2026 date, relief on certain shares listed on AIM will be halved to 50% in all instances.
- From April 2027, death benefits from pension arrangements (including death in service benefits) will be included in the estate for IHT purposes, meaning that in some instances, they will be liable to both income tax and inheritance tax.
These changes will make little difference for some people, but will upend estate planning for others, something examined further in ‘Time to review your estate planning?’.
Time to review your estate planning?
The October Budget could mean a radical rethink in your estate planning.
Changes to inheritance tax (IHT) coming over the next three years, outlined in our feature article on the Autumn Budget, could mean that a review of your estate planning is required. The final rules have yet to be published so there could be more changes to come, and there are two main areas that need to be examined.
Pensions
Labour’s first Budget brought significant changes to pensions and inheritance tax (IHT) has led to further considerations for estate planning. From April 2027, unspent pension funds will be included in the value of an estate for IHT purposes. This may increase the overall value of the estate affecting the residence nil rate band and leading to a higher IHT consequence.
Here are some strategies to mitigate the pension IHT liability:
- Drawdown down and gifting: drawing down your pension and making regular gifts out of income can be an effective strategy. These gifts are typically IHT-free, but it’s crucial to ensure that this approach doesn’t compromise your financial security.
- Spousal transfers: leaving your pension to your spouse or civil partner can help, as transfers between spouses are generally IHT-free. This can also allow the surviving spouse to benefit from any unused IHT allowance.
- Charitable donations: leaving part of your estate to charity can reduce the IHT rate on the remaining estate from 40% to 36%.
If part of your estate planning involves pension benefits paid on death, then the new rules from 2027/28 could significantly increase the IHT liability on your estate. This applies to any residual pension funds unused at the date of death but may also to apply to certain lump sum death benefits payable alongside a pension scheme and dependents pensions from certain types of schemes.
To read more click here, and contact us for some more guidance.
Business and agricultural reliefs
If you own shares in a private business, a partnership interest or agricultural land, the £1 million overall cap on 100% IHT relief means you can no longer assume these will pass to your beneficiaries free of IHT if you die after 5 April 2026. Relief of 50% will be available above the cap and the IHT can be paid over ten years in interest-free instalments.
In theory, a married couple or civil partners can transfer business assets and/or agricultural land worth £2 million before IHT bites, but as the £1 million limit is not transferable, each partner would need to make their own bequest. As a result, it could be necessary to restructure ownership and revise wills before 6 April 2026 arrives. Alternative strategies are available, but as with pensions, any approach must be tailored to your personal circumstances and financial goals.
Investment in a world of higher capital gains tax
Investors face higher tax on investment gains after the rates of capital gains tax (CGT) were increased in the Autumn Budget.
The Budget raised the main CGT rates to 18% or 24% (from 10% and 20%). This follows a cut to the CGT annual exempt amount (AEA) last year to just £3,000. This makes tax-efficient savings vehicles like ISAs and pensions more attractive as there is no CGT to pay on gains made in either wrapper.
Utilise pensions or sell shares
Other ways to potentially reduce future CGT liabilities, including making additional contributions to pensions which are not within the CGT regime, and making strategic use of the CGT AEA. If you are looking to realise a large gain, it may be worth selling shares in tranches over two or more years to utilise each year’s CGT AEA, as it cannot be carried forward.
Offset against losses
Capital losses can offset capital gains, and losses can be carried forward indefinitely to offset future gains if reported to HMRC within four years of the end of the tax year in which the asset was disposed of.
Transfers of assets between married couples and civil partners are CGT free, so there is scope to arrange finances as a couple, potentially reducing the total tax paid. Owning assets jointly is also effective as any gain is split equally.
Consider alternative tax wrappers
Investment bond wrappers offer tax advantages, such as allowing up to 5% annual withdrawals without immediate tax and deferring tax on growth until encashment. They can be useful for inheritance tax planning, as they can be placed in trusts, and for managing tax efficiently by assigning them to lower-rate taxpayers.
Bonds also provide flexibility with segmented options, simple administration, and a wide range of investment choices to suit long-term financial goals.
As always, take advice before making key decisions about your finances.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
CTFs grown up – the importance of children’s savings
Young adults, and their parents, are being urged to track down lost Child Trust Funds (CTFs), which have an estimated £1.4bn sitting unclaimed in dormant accounts.
CTFs were opened for all children born between 1 September 2002 and 2 January 2011. Parents received a £250 voucher and could open a cash or investment CTF, with low-income families receiving £500. Accounts were opened automatically for children if parents failed to take action, and the government made a further payment on the child’s 7th birthday.
Parents, grandparents and family friends can contribute to these accounts, currently up to £9,000 a year, meaning many CTFs have sizeable balances on maturity.
A CTF reverts to the child at 16, and they can access this money at 18 or transfer it to an adult ISA.
Government data shows 670,000 of these maturing CTFs are untouched — with the average balance standing at £2,212. The online tool on gov.uk is designed to identify lost accounts. If you don’t know the CTF provider, account holders will need other key details, including home address (at birth) and national insurance number. Individuals can then get in touch with the provider to find out the balance of the account and how to access the fund or transfer it into another savings vehicle.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Past performance is not a reliable indicator of future performance.
Could you afford to live to 100?
The number of people reaching their 100th birthday is expected to treble over the next 25 years, raising a long-term, financial-planning challenge. How can savers ensure they have sufficient funds to maintain living standards through a potentially far longer retirement?
This problem was made significantly harder with the government announcement that it was cancelling planned reforms to long-term care funding in England, due to the cost.
Planning for the twilight years
This makes financial planning for the twilight years difficult. While people’s spending on essential bills remains fairly constant through retirement, discretionary spending, on travel and entertaining for example, is higher in the early years of retirement, but typically declines as people enter their 80s. However, it can rise steeply if care is needed, whether at home or in a residential setting. Building a decent retirement fund can provide flexibility through retirement, regardless of circumstances. It can help to save what you can while working to build up funds. Starting early means your savings benefit from compound growth. Retiring later, or working part-time in retirement, can help these savings go further.
More importantly, with people living longer, it is crucial to consider putting in place Lasting Powers of Attorney so that you can choose people you trust implicitly to act as your attorneys who can help you not only with the management of your property and finances if you need such help in the future but also make health and welfare decisions on your behalf if you are unable to make such decisions for yourself.
Seeking advice when it comes to retirement income options is imperative. Annuities offer a secure income and will continue to be paid for life, however long that is, but may represent poor value if you die young. Drawdown, where funds remain invested, offers more flexibility but less security. Many will opt for a blend of the two.
Consider all your assets
It can also help to take a holistic view of your finances. For many people it is unrealistic to save enough to cover day-to-day living expenses through retirement plus potential care costs. Other assets, such as a property, could be sold to pay for care should the need arise.
Strike (class) 3 – last call for NICs top up
The third and likely final deadline for backfilling your National Insurance contributions (NICs) record to boost your state pension is under four months away.
Significant change to eligibility terms
Eleven years ago, when the coalition government was legislating for the new state pension, it made an important concession. With the minimum NICs record for any state pension entitlement moving from one year to ten years, a temporary relaxation was introduced to NICs backdating rules. This allowed missed NICs dating back to 2006/07 to be paid at any time up until 5 April 2023. Beyond that date, the old rules would apply, limiting the maximum backdating period to six tax years.
The trouble with putting a deadline a decade away was that most people ignored it as there was clearly no rush. The result was that when 2023 arrived, there was a stampede of enquiries about NIC records which the Department for Work and Pensions (DWP) and HMRC could not manage. The inevitable result was that the deadline got moved – to 5 July 2023. When that too proved administratively impossible to handle, a third deadline was set: 5 April 2025, giving HMRC and DWP the time to improve their systems.
Four months left
The clock is now ticking on that third deadline, which is unlikely to be extended again. If you have not reached state pension age (now 66 but rising soon) or reached it after 5 April 2017, this is the time to check your NICs record, if you have not already done so. If you are under 66 is the starting point is https://www.gov.uk/check-state-pension.
Gold price hits heights
The price of gold rose strongly during 2024, hitting a number of record highs.
Although gold prices fell back following the US election, they remain higher than in previous years. This may strike some as unusual, given that gold is typically seen as a ‘safe haven’ asset, with demand rising during periods of stock market turbulence. Notably, previous highs occurred after the Covid pandemic and global financial crash.
This year’s rise comes during a time when global equities have also performed well – although investors may remain nervous about wider political instabilities. Exchange Traded Funds (ETFs) tracking the spot price offer a low-cost and tradeable way to gain exposure to this asset. Investors should remember, though, that gold investments don’t yield any income, and the performance this year is no guarantee of future returns.
News round up
Tax deadline looms
The self assessment deadline of 31 January is looming, with late submissions incurring penalties and interest charges. Those needing to complete a return include the self-employed, those earning over £60,000 who also claim child benefit, anyone with untaxed income, including landlords, anyone with savings or investment income of more than £10,000 before tax, and those with total taxable income of more than £150,000. In total an estimated 12 million people will need to file a return by 31 January 2025.
New bank rules on fraud
Under new rules, banks and building societies must reimburse customers tricked into authorising a payment to fraudsters. Scammers persuade people they are talking to their bank, HMRC, or another legitimate organisation. The rules also cover those caught by ‘romance’ scams and paying for goods that don’t exist. The maximum refund is £85,000, although banks can refuse if they can prove the customer has shown a ‘significant degree of carelessness’. Carelessness includes actions such as giving your bank card PIN to a carer, friend, or relative to withdraw cash. There is no protection if you share your PIN with anyone or you keep a note of your PIN with your bank card.
Company car tax
The tax on most company cars will start rising from April 2025, after a three year freeze. Increases are scheduled for the following two years, and will impact all vehicles, including electric and hybrid cars, although the latter will still have a lower tax rate than more polluting vehicles. Electric cars with zero emissions are currently taxed at 2%, but this will rise 1 percentage point each year to stand at 5% by the 2027/28 tax year.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate will writing and some forms of estate planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
