The much dreaded Budget came and went. Some of the most horrendous predictions did not come true but the tax increases were still painful as forecast by the Prime Minister Keir Starmer. The OBR (Office for Budgetary Responsibility) was particularly damning about it. The Chancellor Rachel Reeves described it as a Budget for growth but the OBR could find no evidence of this. In fact,  it was considered to be quite the opposite. Ironically “working people” will indirectly feel the brunt of the tax increases.

 

So how do you plan your finances following the Budget?  Here are a few tips to consider.

 

Emigration

 

Capital Gains Tax (CGT) has not been applied to all of your assets when emigrating abroad but I wouldn’t put it past the government to introduce this at some stage. CGT has increased in the Budget from 10%-20% to 18%-24%. I wouldn’t be surprised if Labour increases it even more in future Budgets. Once you have emigrated and become permanently non-resident you are no longer subject to CGT in the UK.

When emigrating take advice from specialist professionals who can advise you on VISAs, passports and taxation etc. This may well be the best option for very wealthy people.

 

Buy-to-let properties

 

Successive governments keep attacking buy-to-let landlords with tax increases and increasing regulations and extra costs. If selling your property/ies you may consider selling to residential home owners as their only property rather than investors because they will not face the extra 5% stamp duty which was increased from 3% in the Budget. This means you will be under less pressure to drop the selling price.

 

 

Pensions

 

The government is planning to make pensions subject to Inheritance Tax (IHT) on 6  April 2027. This is by no means a given that this will happen but you should plan as if it will definitely happen. Most private pensions apart from older style ones, e.g. S226/retirement annuity contracts, are automatically created in a trust which is outside of your estate for IHT purposes. What Labour is planning to do is unprecedented and some might say illegal. They are attempting to change the legal status of pensions.  The only way of keeping them out of the reach of IHT is to genuinely emigrate and transfer your pension to an overseas pension in your new country of choice. This will avert the overseas pension tax charge of 25% of the value of your pension.

 

The devil will be in the detail on this one so it’s probably best to bide your time before making any planning decisions. Unfortunately, this is likely to lead to individuals investing less into pensions, knowing that pensions will no longer be outside of their estates for IHT purposes.

 

Inheritance Tax Planning

 

Now that business relief and agricultural relief have been halved in the Budget, apart from the first £1m, making most farms and many businesses subject to IHT on the owners’ deaths, there will be a need for individuals to take more advice on IHT planning. For example, life insurance to cover IHT may become a much more popular option as well as trust-based IHT plans using investment bonds.

 

 

Business owners

 

If you are a business owner you have been hit by two big blows – a hike in employer’s NIC from 13.8% to 15% and the reduction in business relief for IHT from 100% to 50% meaning your estate will suffer IHT on your business at a rate of 20% when you die rather than zero currently unless it is worth less than £1m.   You could always sell your business before you die and take advantage of Business Asset Disposal Relief by paying the lower rate of CGT if the proceeds are less than £1m.

To counter the NIC tax on jobs you could use artificial intelligence (AI) a lot more and/or employ more self-employed individuals, especially virtual assistants (VAs) from abroad where labour costs are usually far lower. You may even consider employing robots once Elon Musk’s ones have fallen in value from their current price tag of $28K-$30K per robot. You don’t have to actually employ a robot but you may wish to introduce more automation into your business as that will reduce the payroll cost for you too.

 

Farmers

 

Consider selling your farm while you are alive and potentially pay a lower rate of CGT than IHT on your subsequent death.

 

Mass affluent vs “working people”

 

Many people in the UK own estates worth £1m+ but they do not consider themselves to be wealthy.  Unfortunately the mass affluent will be targeted by Labour during the term of their leadership so expect more tax increases. The best planning is to take advantage of the many tax-efficient investments and pensions whilst they are still available in order to mitigate your taxes especially if you run your own business.

If you are a “working person”, in other words, someone who is reliant on an income from employment or self-employment with little or no investment income,  you have little to fear on the face of it as Keir Starmer has stated that he doesn’t want to increase taxes for such people. Unfortunately, tax increases on employers may indirectly lead to lower salaries for staff notwithstanding the increase in the minimum wage. So expect your taxes to rise and your income to fall over the next few years. Consider upskilling by taking more training and taking more work-related courses. That will help you to become more employable and should result in a higher salary for you.

These are just a few ideas for how to plan your finances following the recent Labour Party Budget. Do be productive and go for it. You know it makes sense.*

 

 

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.