With speculation that the Government could be planning a major tax grab to replenish the nation’s coffers, it’s no surprise that some are calling October’s Autumn Statement the ‘Halloween horror’ budget.
Fears that many Britons could see their liability to taxation rise would not have been eased by the Chancellor, Rachel Reeves, when she said ‘difficult decisions’ were needed. It’s not all doom and gloom though, as an Independent Financial Adviser (IFA) could help you prepare financially for any announcement that’s made on the day.
To understand how they could help, we talked to three AFH advisers. They explain why talking to an IFA is probably more important than ever as we head towards October’s budget. Before we do though, we need to consider what the Chancellor may be planning to announce when the Autumn Statement takes place on Wednesday 30 October.
Capital Gains Tax
This tax is paid on profits made from the sale of an asset that has increased in value, such as property, art or investments. Broadly speaking, in 2024/25 it’s charged at between 10% - 28%, depending on the type of asset you’ve sold and your marginal rate of Income Tax.
Changes could include increasing CGT rates, so that they're in line with Income Tax, meaning they would rise to between 20% - 45%. As such, the amount of tax paid on any gain you make could increase significantly.
Alternatively, the Chancellor may reduce the CGT Allowance, which is the amount of gain you’re allowed to make before CGT is charged. In 2024/25, the allowance is £3,000, however this is half of what it was in 2023/24. If the threshold drops further, it could increase your CGT liability.
Inheritance Tax
Said to be the most unpopular tax of all, Inheritance Tax (IHT) is typically charged at 40% on any part of your estate that exceeds your nil-rate band (NRB). Your NRB is the amount you’re allowed to have in your estate when you die before IHT is charged.
In 2024/25, it’s between £325,000 and £1 million, depending on your circumstances. As the NRB has been frozen until April 2028, millions of households could now face an increased liability to the tax if their assets increase in value while the NRB stays static.
If the Chancellor decides to reduce the NRB or increase the rate at which IHT is charged, millions of households could see a significant increase in their exposure to tax.
Pension tax relief
The Government provides tax relief on the money that you use to make pension contributions. As a result, basic-rate taxpayers usually pay £80 for every £100 contributed to their pensions, while higher-rate taxpayers normally pay just £60 in every £100.
Additional-rate taxpayers may only pay £55 in every £100 contributed. That said, the amount of contributions that receive tax relief is limited to your Annual Allowance.
In 2024/25, this is the lower of £60,000 or the amount you earn. Higher earners may see their allowance drop to just £10,000.
There has been speculation that the Chancellor could introduce a single flat rate of relief. If, for example, this is set at 20%, it could slash the amount of relief that higher-rate and additional-rate taxpayers receive.
Pension tax-free lump sum
Media pundits have questioned whether the Chancellor will reduce the amount of tax-free cash retirees can take from their pension pot. In 2024/25, you can normally take up to 25% of the value of your pension pot tax-free, however this can vary with some pension schemes.
However, this amount is capped at £268,275. This means that if you take more than this, the excess will be liable to Income Tax.
If this reduces the cap, the amount of Income Tax your pension will be exposed to could increase.
Stamp Duty
The Government could drop the first-time buyer (FTB) stamp duty exemption threshold from £450,000 to £300,000. This means FTBs could see a hike in the amount of Stamp Duty they pay, which could affect their ability to buy a home.
As you can see, there could be major changes announced by the Chancellor, which may increase your tax liability. So against this backdrop, let’s find out how an IFA could help you.
To do this, we spoke to three of AFH’s highly qualified advisers, and here’s what they said:
Mark Sidaway
“There is a lot of negativity in the press about this year’s Autumn Statement, maybe to the point of scaremongering. An Independent Financial Adviser (IFA) gets rid of the fear that this negativity creates, as they can break everything down using jargon-free language.
“This provides the client with an understanding about what could happen, and how best to prepare and deal with any changes that are announced. As a result, clients are empowered to do the right thing, which is much more helpful than not understanding how the changes could affect their finances and panicking.
“In other words, IFAs can guide and educate clients so that they make decisions they’ll thank themselves for later on. This provides a lot of comfort at a time like this”.
Jade Soutter-Davies
“In many ways, the speculation about Labour’s first budget has triggered the same sort of panic in the air that we see during a significant market downturn.
People are feeling very nervous and uncertain, which means they’re looking to make decisions based on emotion, not necessarily logic or facts. Financial advisers are very good at helping to calm this sense of nervousness, remind clients of their long-term financial objectives and the importance of sticking to their financial plan.
“Sometimes the best advice to clients in uncertain times has been to ‘sit tight’ and provide reassurance based on similar historic events. It’s important to remember that there is always a lot of speculation before each budget, and that we shouldn’t make rash decisions before knowing how their financial position might be affected by any changing legislation. Any major changes will need careful planning and will not come into force overnight.
Advisers can help clients to plan ahead and create a personalised strategy that will help them achieve their long-term goals. We can adjust plans accordingly once we are certain of the facts and how this translates into financials for our clients.”
Sarfraz Munir
“Perhaps the question is: ‘why wouldn’t someone want to speak to an IFA when there’s so much uncertainty around the Autumn Statement?’. This is because an adviser can provide peace of mind, as they can guide clients through the ‘what ifs’ and help them prepare financially for any change that may happen.
“In many ways, an IFA is like a SatNav in your car. When I drive home, I always use the SatNav despite knowing the way. This is because the SatNav warns me of any traffic jams along the way and re-routes me so that I avoid them.
“Similarly, while someone may have a general idea about what they should do to shield their wealth from any announcement in the Autumn Statement, they may not be aware of the implications of doing so.
“An adviser, on the other hand, will understand the implications in detail, and will be able to highlight them to the client and provide ideas on how to avoid them. This means the client can reach their financial destination much more quickly and without the stress of an unexpected tax liability, for example.”
Get in touch
If you’re worried about the possible impact any announcement made in the Autumn Statement could have on your wealth, please contact us, we’d be happy to help. Either contact one of our advisers or call us on 0333 010 0008.
Wednesday 2 October 2024