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The budget and your wealth

Three areas for review and action

28 October 2021

3 minute read

Anthony Ward, Head of our Wealth Planning team, reflects on the tax announcements in the budget.

Coronavirus continues to have a huge impact on public finances and that’s why this budget was one of the most anticipated in years. Anthony Ward highlights the three key questions clients should consider now and seek advice on.

1. Is your wealth structured tax efficiently?

It will be a relief to many that no further tax increases were announced for individuals. However, clients should take this as an opportunity to review their financial plans and ensure they are making full use of all available tax allowances to protect their wealth as much as possible. With inflation expected to continue to remain well above the 2% target for the next few years, it’s worth doing everything you can to manage your finances and spending as efficiently as possible.

It is worth remembering that in the March 2021 budget, the Chancellor announced that a number of tax thresholds and allowances will be frozen. This included the personal allowance of £12,570, the higher rate threshold of £50,270 and the Capital Gains Tax (CGT) allowance of £12,300, which are all frozen until April 2026.

Clients should take this opportunity to review how their wealth is structured and the impact of tax drag on the returns generated by their portfolios. To reduce the impact of taxation on investment returns, investors may wish to seek advice on the suitability of using investment bonds to protect returns from taxation and give them control over when and how tax is paid.

At Barclays, we believe these frozen tax allowances and the prospect of a period of higher inflation are likely to increase the demand for investments that offer clients the ability to reclaim tax – such as Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs), which offer 30% tax relief.

2. How will you reduce the impact of Inheritance Tax (IHT) on your estate?

There were no new announcements on Inheritance Tax in the budget. Therefore, as previously announced, the Inheritance Tax nil-rate band will remain at existing levels until April 2026. The nil-rate band will continue at £325,000, and the residence nil-rate band will continue at £175,000. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

With certainty over future nil-rate bands, now is the perfect time for clients to review their estate plan with a Wealth Planner or to take advice and start planning if they haven’t already. Clients are often shocked to hear that HMRC could be the largest beneficiary of their estate. However with careful planning, the amount of IHT payable on death can be reduced.

3. What's next for your pension?

There was speculation that the government may change pension rules, however they have left this area of taxation untouched for now and will maintain the Lifetime Allowance (LTA) at its current level of £1,073,100 until April 2026. Pensions are a very complex area and care should always be taken before taking action, especially if a client has valuable LTA protections or could qualify for them. For clients who have pensions with values that already exceed the LTA, or could exceed it at some point in the future, now is the time to plan ahead.

There has been growing demand for alternative investments instead of pensions and, similar to the above, I expect we will see an increase in demand for Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs) which offer 30% tax relief. We also expect clients with multiple pensions will be keen to, where suitable, consolidate their pensions into one self-invested personal pension (SIPP) to help them with valuable planning to reduce the impact of the LTA.

In summary, by seeking advice from our Wealth Planners, clients can plan for their future with confidence.

Next steps

Contact your Wealth Manager if you would like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

This article does not constitute personal financial, tax or legal advice. Each person’s circumstances are different so if you are unsure about investing, you should seek advice from a regulated adviser.

EISs and VCTs are high risk investments and carry a significant risk of capital loss. Barclays Wealth Management conducts thorough and rigorous analysis of the EIS and VCT investments available in the market in establishing its panel of preferred investments.

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.

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