Autumn Update

I hope this missive finds you well.

We had a great trip up to North Wales and the Lake District in our new caravan last month. One of the sites we stayed on had a clairvoyant although he didn’t appreciate me asking him which bit of the caravan will break on our next trip (it was the turn of the water pump on this occasion).

I might as well have asked him what will be in the first budget of the new Labour Government on 30 October. I did trouble myself to read their manifesto but it seems I need not have bothered as this seems to have been more window dressing than a substantial policy document. There is much fevered speculation on what changes we can expect in the trade press and on the social media I follow.

History buffs amongst you may know that on 9 January 1799, Prime Minister William Pitt the Younger introduced a desperate and widely abhorred measure to help cover the temporary costs of his war with France. This ‘temporary’ Income tax is still with us today. This makes me quite concerned about Government tax changes and spending increases as they find it very difficult to roll this back regardless of how hated the measure is.

The most expected change is to Capital Gains Tax. Currently the tax free allowance is £3,000 with gains over this amount being taxed at 10% for Basic Rate tax payers and 20% for Higher Rate tax payers. Second property owners pay 24%. One of the little-known quirks of capital gains is that existing gains are forgiven on death but that might be something the new Chancellor might look to change. Just imagine that holiday home bought 20 years ago and the capital gains tax that would be realised on that, which would then also be subject to Inheritance Tax. That might be a tempting target for our new Chancellor. It would be a big revenue raiser by stealth as most people are unaware of this rule. Pensions being exempt from Inheritance Tax could also be on the block, along with the tax free sum, higher rate pension tax relief and a number of other measures. Unfortunately, I cannot advise based on what might happen.

I would observe that mucking around with the pension rules is very complicated and creates a number of unexpected outcomes. There was some talk that the Chancellor would exempt the public sector from the changes to avoid the problems of doctors in the NHS retiring early (“All animals are equal, but some animals are more equal than others!”).

If we take the example of pensioners losing the winter fuel allowance unless they qualify for pensions credit, this creates the perverse incentive for anyone that’s saved a little bit of money for retirement to simply spend it so they can fall back on the state.   Our new Chancellor would do well to familiarise herself with the principles of the Laffer curve before making any changes.

In my view we should be reviewing your circumstances well before 30 October if you fall into any of the following categories (which are not exhaustive):

1. You plan to retire or take pension benefits within the next 12 months. You might find it more favourable to implement the pension changes this side of the budget.
2. Anyone with capital gains on assets or investment portfolios as you might be able to realise gains at 10%/20% rather than at 40%+. There might be a chance to use spousal exemptions as well (giving an asset to your spouse to sell and pay a lower rate of tax).
3. Anyone planning to put a large sum into pensions might be well advised to bring this forward before 30 October.
4. Anyone that anticipates a big life event in the next 12 months such as a big job move, selling properties or making gifts to children for Inheritance Tax reasons.

I will be sending a post match analysis a few days after the budget on 30 October. If there are going to be significant changes, expect them to take effect immediately as there is plenty of precedent for this.

You might think that I would be glad to see lots of changes as this drives more enquiries my way but I would honestly prefer the rules to be left alone!

If you want to discuss your circumstances, please message me ASAP so we have enough time to make changes before the budget date.