Anyone reading the financial press last week will have noted that the post-Budget commentaries were some of the briefest in recent memory. This is because many of the changes to personal and business taxation were announced in previous months.
The freezing of the personal allowance and thresholds for Income Tax, Inheritance Tax nil-rate band and Pension Lifetime Allowance until 2025/26 were confirmed, as were preannounced 1.25% increases to National Insurance and Dividend Taxation from April 2022.
However, with inflation and wages expected to rise more than previously anticipated – and an interest rate increase expected – the effects of those measures could be quite significant. Indeed, when combined with the rise to Corporation Tax from 2023, those taking dividends from trading and investment companies, for example, may face significant rises in overall taxation.
The sooner you take action, the more options you may have, so it... makes sense to seek appropriate advice at the earliest opportunity.
What action can high-net-worth individuals take?
The Office for Budget Responsibility commented that the tax burden is the highest it has been since Clement Atlee’s post-war government. In light of this, this might be a good time to review your financial affairs to ensure you’re using all appropriate allowances and exemptions. This can help to reduce the tax burden for all of the family and is something that we at Investec Wealth & Investment can help with.
A financial plan can also take into account that additional tax changes may be introduced in the near future. This includes the outcome of consultations on Capital Gains Tax (CGT) and Inheritance Tax (IHT) rates.
Where a transaction that might give rise to a significant CGT liability is being considered, such as the sale of a business or reduction of a concentrated investment holding, options to reduce exposure to tax on sale should be considered in advance.
When it comes to Inheritance Tax, the sooner you take action, the more options you may have, so it also makes sense to seek appropriate advice at the earliest opportunity.
In his speech the Chancellor confirmed that he would like to be in a position to cut taxes ahead of the next election, which will be May 2024 at the latest. Whether these tax cuts take the form of material reductions to the headline rates of major taxes, or perhaps a reversing of the freeze that has been applied to the aforementioned allowances, remains to be seen.
Where tax cuts are made, they often take the form of 'give with one hand and take with the other' approach. When thinking about future plans and transactions, individuals should consider which side of that equation they are likely to fall under.
The contents of this article do not constitute a formal recommendation or personal advice and no action should be taken, or not taken, on account of the information provided. Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practise and can be subject to change.