Regardless of which political party is in power, UK taxation levels are heading inexorably upwards. Before the financial crash, taxation was around 33% of GDP but it is rising rapidly towards 38%. Higher taxes mean your money has to work as hard as possible to achieve the best returns.

The UK’s bewildering patchwork of taxation policies has always been complex and inefficient. But there is now increasing pressure on future governments, of whatever complexion, to simplify the tax system and to increase taxation on wealth.

This could affect pensions and inheritance tax and might lead to higher tax rates on dividends and capital gains. Nothing is certain, but good financial planning means preparing for the worst while hoping for the best.

Be prepared

‘Be prepared’, the motto of the Scout and Guide movement, serves as invaluable advice for individuals seeking resilience and stability in their financial affairs during times of volatility.

Trying to predict exactly how the tax landscape may change is almost impossible, but taking sensible precautionary steps to minimise any impacts is eminently doable.

A well thought out and proactive tax planning strategy can anticipate many of the likely scenarios with a view to preserving and enhancing your wealth.

Understanding potential areas of impact

Certain key areas of personal finance are very much in the spotlight these days. Changes in tax policy are likely to affect income tax, capital gains tax (CGT) and inheritance tax (IHT).  A range of influential think tanks are calling on government to raise taxes on wealth and higher earners.

For instance, a decision to equalise CGT with income tax could raise more than £15 billion a year for the Exchequer from high-net-worth individuals (HNWIs). This comes as the CGT allowance has been reduced to just £3,000 per person in the current tax year 2024/25.

Speculation has also centred on changes to IHT. The prolonged boom in high-end residential property has seen many more people cross the threshold for paying IHT, which has not moved since 2009.

According to the Institute of Fiscal Studies (IFS), one in eight people will be liable for IHT by 2032. Despite speculation, the abolition of IHT is unlikely.

Changes to income tax is a perennial political issue. Some parties have mooted policies that include raising income tax to 50p on incomes above £125,000 and ending marriage tax allowances.
 

 

Tailoring financial plans for resilience

Tax legislation is constantly changing, and it is vital that your financial plan keeps pace as well as considering potential future moves.

At any one time, there will be a range of effective strategies for maximising the tax-efficiency of your portfolio of wealth and assets. These include using your ISAs to best effect and making full use of the tax advantages of your pensions which give tax relief at your highest marginal rate of income tax.

By using full ISA entitlements, including the new British ISA for UK shares, a family of two adults and two children could invest £68,000 tax-free in any one year. IHT can be minimised with careful planning that includes making full use of annual exemptions.

Diversifying your investment portfolios can help you make it more tax-efficient.  This is because not all investment assets are treated in the same way by the taxman.

For instance, UK government bonds, also known as gilts, are popular with investors as they are considered less risky than shares and offer a steady, reliable income. While the interest earned on gilts is subject to income tax, any profits made on the sale of gilts are fully exempt from capital gains tax (CGT). A good financial adviser will help you navigate these quirks of the tax landscape to make your portfolio as tax efficient as possible.

Seeking professional advice

Some people enjoy managing their own investments but for most, it’s a chore or even an ordeal. The complexity of the UK tax system means that it’s good to have an experienced professional on your side who can take care of the detail.

The number of reliefs and allowances available is bewilderingly large and the tax rules are constantly in flux. An experienced financial planner can advise you on the best tailored strategy for you and your family, structuring your plan to keep your tax bill to a minimum.

Maintaining long-term financial goals

A week is said to be a long time in politics, but savers and investors should be thinking in terms of years and decades. Trying to time the market is never a good idea. It’s important to stay focused on your long-term financial goals, regardless of any short-term political changes.

Budgets are not just for Chancellors. Disciplined financial management, including regular reviews and adjustments of your financial plans, can make a substantial difference to minimising your tax bill and maximising the value of your savings.

Preparation is key

In a volatile political climate, preparing for potential changes to the tax regime is essential for maintaining financial stability and resilience. By understanding the potential areas of impact, tailoring financial plans accordingly, seeking professional advice, and staying focused on long-term goals, individuals can navigate through any uncertainty with confidence and achieve financial success.

In summary, it’s important to:

  • Proactively assess potential areas of impact from changes in tax policy.
  • Adapt financial plans to optimise tax efficiency and mitigate risks.
  • Seek professional guidance to tailor strategies to individual circumstances.
  • Stay committed to long-term financial objectives despite short-term political changes.

 

Male sitting on sofa looking at laptop

Tips to minimise the tax toll on your earnings

This article explores some simple steps to ensure you are benefitting from all your available tax allowance and reliefs.

Tax planning

How we can help

Getting to grips with the UK’s intricate and ever-evolving tax system is tricky and time-consuming. Our expert advisers can guide you through the maze, creating a tailored plan that matches your needs while preserving and growing your wealth. They will review your plan with you on a regular basis, helping you to stick to it while ensuring that your money is working hard for you in the most tax-efficient way possible.

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We have a team dedicated to supporting people like you. Please get in touch to discuss your financial needs today.


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Important information

Tax treatment is dependent on individual circumstances. This information is provided in good faith and is based upon our understanding of current tax law and HMRC practice, which may be subject to change in the future. It is important to obtain professional advice from an accountant or tax specialist before taking any action or making any decisions.

The information contained in this publication does not constitute a personal recommendation and the investments referred to may not be suitable for all investors.

The value of investments and any income derived from them may go down as well as up; you may get back less than the amount invested.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.