Gigantic Black Hole - Industry Insights

This won't come as a surprise, but we thought we would touch again on the upcoming budget in this month's newsletter.

I don’t think anyone is looking forward to this event, as we have been told there is a gigantic black hole in the nation's finances that apparently Labour didn’t know about.

Despite not explaining much about where it has come from and where exactly it is, it is going to have to be filled, and quickly.

The likelihood of higher taxes looms large (maybe on par with the hopeful sacking of my beloved football team's manager, Eric Ten Hag—but that's a story for another day).

So, which taxes will they go after?

Having ruled out hikes to the big hitters (Income Tax, National Insurance, and VAT), Ms Reeves has to pick through the below.

Capital Gains Tax (CGT)

You only pay CGT when you sell. So if the CGT allowance is lowered again and many people may just wait until allowances are more favourable. Therefore no immediate injection of cash.

Inheritance Tax (IHT)

The IHT thresholds have been frozen since 2009 and will remain so until 2028. I'm not sure there’s a lot of scope here. One suggestion is that pension pots lose their IHT-free status.

Dividends

The pathetic annual Dividend Allowance of £500 is so small that it as well be abolished.  Increasing tax rates on dividends—typically received by individuals with investment portfolios or business ownership, who are often unfairly characterised as having reached success through exploiting others is a potential move, however, it’s unlikely to make a significant impact on reducing the deficit (if deficits can even be ‘dented’.

ISAs

Reeves could bring in something here related to an overall lifetime allowance of, say £1m. I would be surprised if she reduced the £20,000 annual allowance.

Pensions

I keep getting asked, “Will Labour take my tax-free cash away?” and all I can give you is my opinion.

It is already capped at 25% of your fund or £268,275, whichever is less).

Again, like the CGT issue, if tax-free cash was reduced now, would it bring much-needed cash to the Government quickly?

What about those who would take it before the new rules come into play?

What benefit would that be to the Government?

All it would do is cause chaos.

What they could do is play with the tax relief – introducing flat rate of pension tax-relief, say 30% across the board. Not upsetting already p*ssed off pensioners and it will raise revenue for The Gigantic Black Hole.

It sounds good on paper, but anything in finance is a little iffy to implement and won't be done overnight.

Luckily for me, as I can't, no one else can give definitive answers on what will happen.

But what I can give you is good guidance, direction and comfort. Knowing you have a meaningful plan in place with readily available cash flow forecasting surely brings you peace of mind.

And remember, we don’t change our financial plans unless our circumstances change.

Post Budget, we will be in touch, and please do drop me a message if you have any questions, queries or concerns!

“Nothing is certain except death and taxes”