Chancellor Rachel Reeves’ Budget last month represents “the biggest shake-up to financial planning in a long time”, according to Quilter’s head of technical sales Roddy Munro.
Munro made the comments at the PFS Rewired conference in Manchester today (November 12).
He also warned advisers not to “underestimate the historical importance of this Budget”, particularly bringing pensions into the scope of inheritance tax (IHT) and changes to capital gains tax (CGT).
The chancellor, Munro also observed, “has flagged her intention openly” by allowing frozen IHT allowances to remain through to 2028 but not to 2030.
This will drag 11.5 million people into higher rates of income tax over the next four years, enough to “fill Wembley Stadium several times over”.
However, Munro pointed out that 42% of those people are aged between 50 and 79 – the target market ‘heartland’ of clients heading towards retirement decisions.
The government has stated in the Budget that “pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance”.
It also established that IHT will apply to all pension wealth that is transferable on death.
Therefore, said Munro, redefining the primary purpose of a pension will require a massive shift in advice for those with substantial defined contribution (DC) pots.
Munro also said that changes to CGT had “drained the life” out of general investment accounts (GIAs).
For disposals after October 30, the lower rate of CGT will rise from 10% to 18%. The higher rate will rise from 20% to 24%, while trusts have increased to 24%.
In addition, business asset disposal relief (BADR) and investors’ relief (IR) will rise gradually to 14% from April 6, 2025, to align with the lower rate of 18% by April 6, 2026.
This makes it less attractive to transfer ownership to a spouse than before, with GCT annual exempt amounts falling from £12,300 in 2020/21 to £3,000 in 2024/25.
The tax-free dividend allowance also fallen from £5,000 in 2016 to 2018, to £500 in 2024 to 2025.
The layering effect of all these fiscal changes has hit hard, said Munro, with tax now potentially the biggest cost to a client.
As a result, tax-wrapper optimisation is now paramount, as wrapper selection could have the biggest impact on total net costs.
Munro illustrated this point using a graph that showed platforms representing 25 basis points (bps), investment 60 bps, advice 50 bps and tax 88 bps (or 65% of the total 223 bps).
As previously flagged at last year’s PFS conference, these changes to IHT and CGT are likely to increase the attractiveness of bonds.
Munro pointed to Quilter’s ongoing tax-comparison tool to assess the ‘here and now’ tax position of retaining an existing CIA/GIA compared to moving to an onshore bond.
Bonds, he emphasised, are “a critical tax-planning tool” in terms of rewrapping client wealth
He also said that quality financial advice in this new tax landscape would be vital.
“Clients are going to need your help,” he concluded, “so your value has gone through the roof.”
Am I imagining it, or didn’t someone say the the budget was a blip?
Yes, Just found out. It was Adrian Frost of Artemis at a Quilter event who said that the budget would be a blip. Glad to see that Quilter themselves have more sense!
Indeed… in fact, I think we both commented re Artemis at the time – non?
There are two points which have had liitle or no attention so far from the budget…
1. Employers’ NI… for the VAST moajority of part time workers, employer NI has doubled mainly due to cutting the £9,100 threshold to £5,000.
2. IHT comment has failed to say that an estate of £3M will lose its’ NRB… thus, the Agri/buisness IHT will be – £600k NOT £200k!
Harry, I am exiled in Corwall… 🙂 In London week before Christmas – Luncheon? +447798908422.
Remember those clients who used SIPPs and SSASs for property purchase. Will the IHT hit entail forced sales, significant loans, stress on the business? What impact will this have on small businesses who have invested in their own premises?