The UK government has been forced by the coronavirus pandemic to increase public spending in a bid to get the economy moving.
But this comes at a price, as chancellor Rishi Sunak has to raise about £20bn ($26.5bn, €22.5bn) a year through taxes to pay for the government’s financial support during the outbreak, according to financial planning group 1825.
There are rumours that Sunak is prepared to make changes to inheritance tax, capital gains tax and scrap the triple-lock on pension in the upcoming budget.
But Sunak said on the BBC that there will not be a “horror show of tax rises with no end in sight”.
Ignore the speculation
Graeme Robb, senior technical manager at Prudential UK, told International Adviser: “In the lead up to a budget, speculation is always rife. The difference this time is that we have lots of speculation but as yet, no budget date.
“Regardless of its timing, this budget will be a critical one for Sunak, and, as ever, there will be announcements impacting mainstream financial planning.
“In the meantime, all we can do is ignore the speculation and remain focused on the tax reliefs, allowances, and exemptions that clients enjoy under the current tax landscape.”
Use allowances now
Advice clients may be completely affected by Sunak’s changes in the budget, or not at all.
But Shona Lowe, private client and corporate director of 1825, said that “high net worth individuals should always make use of the allowances, exemptions and reliefs available to them, even if changes are being proposed”.
IA went out to the advice industry to find out whether this was a sensible thing to do.
Neil Chadwick, head of technical services at RL360, said: “Clearly, anyone that needs to use a tax allowance should make use of it now just in case it disappears or is restricted. This is irrespective of whether they are high net worth or not.”
Tracy Crookes, financial planner at Quilter, said: “While it’s difficult to say what exactly the government will do, we can say with some confidence the tax system will not get any more generous than it currently is. It is vital therefore for clients to make use of any and all allowances available to them this year because the chances are some of them will be less generous going forward.”
Helen Clarke, tax, trusts and estates partner at Irwin Mitchell said: “In succession planning, many clients rely on the tax-free uplift on the first death before gifting in order to wipe out gains, particularly property investor client.This then enables gifting after the first death with the benefit of having no capital gains tax to pay.
“We expect this uplift to be removed in cases when a relief to inheritance tax is secured, e.g. spouse exemption.This might accelerate lifetime planning by clients who want to take advantage of the current low tax rate and can afford to pay the tax now.”
Not sensible
There are some in the industry that believe clients should make changes to their financial affairs on the back of press speculation.
Rachel Vahey, senior technical consultant at AJ Bell, said: “Nothing is yet certain. If someone was considering making a contribution, taking tax-free cash or realising a gain then they could consider doing that now rather than leaving until later.
“But if they weren’t previously planning on doing this then taking action just based on press rumours isn’t sensible.
“It will mean changes to their financial planning and, if making a pension contribution, locking up the money until they are 55 at the earliest.”
