Post Autumn Budget Brief

It was great to see so many people at the Cottons Roadshows earlier this month.  It is sometimes difficult to make such a dry subject interesting and engaging, and I hope that we achieved that.  Thanks again to Cottons for including me at the events, and I look forward to being involved in others in future.

 

For those who were not at the events, or even for those who were, I wanted to give a brief overview of some financial planning considerations that have come out of the Budget.  This overview is not a complete summary of the Autumn Budget, merely picking out some specific points regarding financial planning, and a lot of these areas have been discussed with our clients.  To see more detail about the changes announced in the Budget, please refer to the previous mailers from Cottons, or speak with your Accountant or financial adviser.

 

The main summary of my presentation on the roadshow is to diversify your tax wrappers as much as is possible to do so.  This helps you to mitigate your exposure to any tax that the Government decides in their wisdom to attack.  It is also a similar logic to why you should diversify your investment portfolio – again this is so that you are not exposed to any area that may be impacted by events that are not under your control.

 

Employer National Insurance (NI)

 

With employer NI increasing, this will undoubtedly cause difficulties for many businesses.  However from a financial planning perspective, there are potential opportunities that arise.  One way is to ensure your remuneration through your business has been set up efficiently, for example by limiting salary levels in exchange for dividends and/or pension contributions.

 

For employees, offering salary sacrifice on pension contributions could save you the NI contributions on that part of their income, or it could be added to their pension contributions to give them an even bigger uplift than they have at present.  This is definitely a benefit for employees even if it does not benefit the employer financially.

 

Capital Gains Tax (CGT)

 

With CGT personal rates increasing from 10% for basic rate taxpayers and 18% for higher and additional rate taxpayers, to 18% and 24% respectively, many people are asking us how this can be mitigated.

 

Aside from deferral of your CGT liability that is possible by investing in Enterprise Investment Trusts (EISs), we are actively encouraging people to reduce their exposure in taxable investments and moving as much as possible to pensions and ISAs.  This is limited to the allowances on those tax wrappers, but having a strategy to do this each year allows you to reduce your exposure to CGT over time.

 

We are also seeing an increase in the use of Investment Bonds, which allow you to invest your money in an environment where gains are treated as income (subject to Income Tax), not as capital gains subject to CGT.  Utilising this tax wrapper alongside traditional pensions, ISAs, General Investment Accounts (GIAs – taxable investment accounts) is very sensible if you have the liquidity and means to do it.

 

If you have any crystallised losses from previous tax years, these can be reported to HMRC within 4 tax years of the loss happening, and this can be offset against gains in future for the rest of your life.  With the stockmarket downturn that we saw in 2022, this could be something that is used if you had any losses that were crystallised in that year, for example by moving money to your ISA (known as ‘Bed & ISA’).

 

You can also utilise spousal transfers of assets to spread the gain between 2 people.  Any transfer of assets outside of the spousal transfer is deemed a disposal for CGT purposes and may result in tax charges, so you should take advice on this.

 

You can of course choose to do nothing and do not crystallise any gains you have or spread it out over multiple tax years to keep you within the allowance (although this is still only £3,000 per person, per tax year).  It could be that future Governments change the rules in this area as we have seen historically, although there is no guarantee of this.  At present, gains are also still wiped out on death and revalued at the date of death on the next generation.

 

Pensions

 

Thankfully we did not see the speculated changes to tax-free cash entitlement and tax relief on contributions come to fruition.  However the Government did throw a curveball to say that they are ‘consulting’ on whether pensions should form part of the estate for Inheritance Tax (IHT) purposes, due to come into force in 2027.

 

So what does this actually mean?  At the moment, nothing has been decided and it is still out for consultation.  This means that it may not happen, or if it does, it could be in a very different way to the initial proposal.  For now, pensions still represent a valuable part of financial planning and we are continuing to recommend them as applicable.  They still have valuable tax benefits for individuals and businesses outside of the IHT treatment and should be one of the main core foundations for good financial planning.  They are also still outside of the estate for IHT purposes until a new system comes into place.

 

If the rules do change and pensions fall part of the estate for IHT purposes, or if a death benefit taxation system is reintroduced (this was the case for many pensions until 2015, so we have precedent), assessing your options and taking financial advice at that time is essential.  It may be that you consider withdrawing your tax-free cash entitlement and spending, gifting, or moving money into trust, or other tax wrappers.  It is vital that these options are assessed and evaluated before any decisions are made.

 

There are many other considerations with IHT planning that need to be discussed as applicable, but first and foremost for many people their pension is one of the primary sources of retirement income, not just as a tool for mitigating IHT.  However it has made pensions much more attractive to many and it would be a shame if a new taxation burden is introduced.

 

Inheritance Tax (IHT)

 

Alongside the potential that pensions will not be part of the estate for IHT purposes mentioned above, there is still a spousal transfer applying (including pension funds if they are included in the estate).  You should still look to use money that is in your estate before accessing pension funds under the current rules.  Making gifts, spending the money, or putting funds into trust are also valuable ways of mitigating IHT that should be considered.  You also have the ability to invest into Alternative Investment Market (AIM) stocks, which are eligible for Business Relief after 2 years of ownership, although this now has a 20% IHT charge above £1million applying.

 

The future of Business Relief and Agricultural Property Relief (APR) is very much top of the media agenda at present, particularly with groups of farmers marching to protest at Westminster at the time of writing.  It will be interesting to see how this space develops, but please speak with your Accountant or financial adviser if this impacts on you.

 

Corporation Tax

 

Although not impacted directly in the Budget, it is still worthwhile understanding ways to mitigate exposure to Corporation Tax with financial planning.  When I speak with business owners, one of the first areas I discuss is the ability for the company to pay money directly into your pension.  This is a great way to extract profit alongside salary and dividends.  It helps to build a pot of money independent of the business, which can be drawn on in future.  The business is able to pay in up to available annual allowances from the previous 3 years (currently up to £200,000 per person in 2024/25, unless you are subject to ‘tapering’ due to your earnings being over £200,000).

 

I also regularly talk about ‘relevant life cover’, which is one of the areas I have written about in a previous article.  This allows any employee (including Directors) to have personal life cover in place through the business as a one-person employee benefit.  You can typically go up to around 20-25 times your remuneration (salary and dividends), depending on your age.  The life cover is written in trust for the benefit of your family, in the same way that you would normally do for any personal life cover you have.

 

Both of the above areas are Corporation Tax deductible administrative expenses and are not benefits in kind if done in the correct way, so are extremely tax efficient, as well as being essential parts of financial planning.

 

Conclusion

 

We are urging people to not panic at this stage and make any decisions that could turn out to be detrimental in future.  The Budget proposals are not all set in stone and many are still subject to ongoing consideration.

 

As stated in previous articles I have written, at Golden Oak Wealth Management, we advocate the use of multiple tax wrappers to diversify your exposure to any tax rules, rates and allowances.  This allows our clients to mitigate their exposure to any one single tax and the impacts of any changes being introduced.

 

We are actively monitoring this space and will be able to provide advice as we are clearer.  What is clear is the need for good quality independent financial advice.

 

We are specialist Independent Financial Advisers (IFAs), so we are able to advise on all areas of financial planning suitable for you, and due to our independence, we can recommend the best products and providers in the marketplace.

 

For further help or advice specific to your circumstances, contact Golden Oak Wealth Management on 01780 723118.

Meet Daniel Payne, Chartered Financial Planner at Golden Oak Wealth Management. Dan works closely with Cottons to offer expert regulated financial advice, bringing valuable insights for our clients. While we’re great at chartered accountancy and business advice, it’s important to know that financial planning has its own set of rules overseen by the FCA in the UK. As your accountants, we’re here to help navigate you to experts like Daniel for thorough financial planning. Understanding this difference is key, and we’re all about making things clear rather than putting up barriers.

This article is a joint effort to keep you well-informed. If you need any assistance, feel free to reach out to us or directly to Daniel.

daniel@goldenoakwealth.co.uk

07585 233528

01780 723118