As the UK approaches the autumn budget, set for October 30, 2024, wealth managers and investment platforms are voicing their priorities amid growing speculation about potential policy changes. With Chancellor Rachel Reeves tasked with addressing a £22 billion shortfall in public finances, the stakes are high.
Tax Increases and Fiscal Pressures
The Institute for Fiscal Studies (IFS) recently indicated that the government may need to implement around £25 billion in annual tax increases to meet public spending commitments. Reeves has ruled out hikes in VAT and national insurance, as well as increases to the main rates of income and corporation tax. However, she has acknowledged that some tax increases will likely be necessary.
One significant proposal involves raising capital gains tax (CGT) rates, potentially up to 39%. Currently, CGT rates for various assets, including shares and second properties, range from 10% to 28%. Another contentious idea is reducing the tax-free lump sum that savers can withdraw from their pensions, which could drop from £268,275 to £100,000.
Wealth Managers’ Insights and Recommendations
Need for Certainty and Stability
Will Walker-Arnott, director of private clients at Charles Stanley, emphasizes the need for certainty in financial policy. He notes that the prolonged gap between elections and budget announcements has led to speculation that undermines consumer confidence. A more gradual and reasonable approach to CGT increases would be preferable to stimulate economic growth.
Simplification of ISAs
Both Walker-Arnott and Rachael Griffin from Quilter advocate for simplifying the Individual Savings Account (ISA) structure. Walker-Arnott suggests focusing on a single stocks and shares ISA, arguing that many assets currently held in cash ISAs should be invested to spur economic growth. Griffin agrees, calling for fewer ISA types and prioritizing investments in higher-return options like stocks and shares ISAs.
Lifetime ISA Reforms
Experts also want reforms to the Lifetime ISA (LISA) to enhance its usability. Jason Hollands from Bestinvest suggests reducing withdrawal penalties and lifting the cap on property values that can be purchased with a LISA, which has remained stagnant since its inception. Given rising property prices, particularly in London and the South East, these changes could significantly impact affordability for first-time buyers.
Investment in Long-Term Asset Funds
Susannah Streeter from Hargreaves Lansdown advocates for allowing investment in Long-Term Asset Funds (LTAFs) through mainstream stocks and shares ISAs. Currently restricted to more niche ISA products, broadening access could diversify investment options for savers.
Pension Tax Clarity
On pensions, Helen Morrissey from Hargreaves Lansdown seeks “urgent clarity” on tax-free lump sums, arguing that uncertainty can lead to poor decision-making by savers. Craig Rickman, a pensions expert, urges the government to maintain the current pension tax regime to provide consistency for long-term retirement planning.
State Pension Insights
Rickman also highlights the need for clarity regarding the state pension, especially amid speculation about increasing the pension age to 68. Clear communication from the government about the state pension framework would help alleviate concerns and provide guidance for individuals planning for retirement.
Conclusion
As the budget announcement approaches, the overarching theme from wealth managers and investment platforms is a call for clarity and simplification in financial policies and products. These changes could not only enhance consumer confidence but also encourage long-term investments, ultimately aiding the government in addressing its fiscal challenges while promoting economic growth.
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