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The Budget and your wealth

Three areas for review and action

04 March 2021

3 minute read

Following the tax announcements in the Budget, Anthony Ward, Head of our Wealth Planning team, reflects on the three key questions clients should consider now and seek advice on.

Coronavirus has had a huge impact on public finances and that’s why this Budget was the most anticipated in years. Given the tax announcements Anthony Ward, Head of our Wealth Planning team, reflects on the three key questions clients should consider now and seek advice on.

1. Is your wealth structured tax efficiently?

The Chancellor announced that a number of tax thresholds and allowances will be frozen. This includes the personal allowance: the basic rate will rise to £12,570 from April 2021 and then remain frozen until April 2026, the higher rate threshold will rise to £50,270 from April 2021 and will also be frozen until April 2026, and the Capital Gains Tax (CGT) allowance will remain at its current level of £12,300 until April 2026. Rishi Sunak commented “The highest income households will continue to contribute more,” in terms of taxation.

At Barclays, we believe these changes 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.

Clients should also 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.

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

Following the Budget more estates will become subject to IHT and the larger estates that continue to grow in value will pay more IHT, leaving less for loved ones and beneficiaries. This is because the inheritance tax nil-rate bands 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?

The key announcement on pensions is that the government 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 exceed the LTA now, or could exceed it at some point in the future, now is the time to plan ahead.

This latest announcement is likely to result in clients considering alternative investments instead of pensions and, similar to the above, I expect we will see an increase in demand for (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, amongst the many changes and announcements today these are three key areas that will impact many clients. By seeking advice from our Wealth Planners, clients can plan for their future with confidence.

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.

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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