We thought it would be helpful to send some initial thoughts following the budget. Business owners and those with significant pension assets are now faced with a completely different situation, which could affect ongoing planning. 

Here is a summary of some of the most significant changes announced.

Pensions

Rumours about changes to tax-free cash, pension tax relief, and the lifetime allowance were unfounded. Instead, the government announced it would bring unspent pension pots into the inheritance tax (IHT) scope starting April 2027.

This is a huge change for those with pension assets and will likely lead to a massive increase in tax revenue over the coming years. The usual spouse/civil partner exemption should still apply, which makes it particularly important to have an up-to-date expression of wish on file.

Strategies to improve your tax situation are already being developed internally, and we will communicate these with you individually.

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief (BADR), formerly Entrepreneurs Relief, will remain at 10% this tax year before rising to 14% on 6 April 2025 and 18% from 6 April 2026. The lifetime limit will be maintained at £1 million, while the lifetime limit of Investors’ Relief will be reduced from £10 million to £1 million.

This change will result in business owners paying considerably more tax when selling their businesses. Many may consider bringing forward a disposal before the 18% kicks in.

Agricultural relief and business relief

This is a tax on the sale of farms and unlisted businesses (typically family-owned assets). Historically, these have been able to pass to the next generation without a tax charge. The logic behind this was that the businesses would then be able to continue. If a large tax charge is due, the business asset may need to be sold if no other assets are available to pay the tax charge.

From 6 April 2026, 100% relief will remain for the first £1 million of combined agricultural and business assets. Above £1 million, the relief will be 50%; this would mean IHT at 20% above £1 million. Thus, it is more important to make a plan to pay any potential inheritance tax bills using alternative assets.

Capital Gains Tax (CGT)

While the CGT threshold (£3,000) remains unchanged, tax rates will increase. The new rates take effect immediately. 

• The lower rate will rise from 10% to 18%.

• The higher rate will increase from 20% to 24%.

This aligns CGT rates paid on non-property and property assets.

As always, we will consider these new rates before making any capital gains chargeable decisions on clients' investments.

Second Homes

The Additional Dwelling Stamp Duty Land Tax (SDLT) rate will increase from 3% to 5% starting immediately. This will affect those looking to enter or increase their holdings in the buy-to-let market or purchase a holiday home.

Summary

The announced changes need to be passed through legislation as part of a new finance bill. We should find out more about the intricate details of each change as the days and weeks pass. The changes highlight the importance of having an up-to-date financial plan. We will assist our clients with any planning that needs to be done following these changes. 

Risk warning

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.  

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

The government's decision to abolish the Lifetime Allowance (LTA) on April 6th, 2024, is a significant change for pension savers. Here at Ifamax Wealth Management, we want to help you understand what this means for your retirement planning.

What was the Lifetime Allowance?

Previously, the LTA capped the amount you could accumulate in your pension pots before facing tax charges on withdrawals. If your pension exceeded the limit (set at £1,073,100 in 2023/24), any amount above suffered a penalty charge when withdrawn.

The LTA is Gone, But Allowances Remain

While the LTA is scrapped, it's replaced with three new allowances:

• Lump Sum Allowance (LSA): You can take 25% of your pension as a tax-free lump sum (Pension Commencement Lump Sum) upon reaching 55 (rising to 57 from 2028). This allowance is capped at £268,275 per person, across all your pension pots.

• Lump Sum and Death Benefit Allowance (LSDBA): This combined allowance totals £1,073,100 and covers both tax-free lump sums taken while alive and those paid out on death (if before age 75). Any death benefits exceeding this limit are taxed at the beneficiary's marginal income tax rate.

• Overseas Transfer Allowance (OTA): Set at £1,073,100, this allowance applies to transfers made to qualifying overseas pension schemes (QROPS).

Lifetime Allowance Protection

Some individuals may have "lifetime allowance protection," safeguarding their pension savings from past LTA reductions. This could mean a higher LSA or LSDBA if you had a significant pension pot at certain dates, and registered for protection with HMRC.

Increased Contribution Limits

Alongside the LTA abolition, the government raised the annual tax-free pension allowance to £60,000 or 100% of your salary (whichever is lower). The money purchase annual allowance (MPAA) for those already retired also increased to £10,000. These changes aim to encourage continued pension contributions.

Looking Ahead

With a UK general election now decided, there is always the chance our new government might reintroduce the LTA. Therefore, it might be wise to review your pension and pension planning sooner rather than later.

Speak to a Financial Advisor

The changes can seem complex. Ifamax Wealth Management is here to help. Our team of financial advisors can provide personalised guidance on navigating these changes and maximising your retirement savings. If you require wealth management services in Bristol, please contact our team of financial advisors.

Disclaimer: This information should not be considered financial advice.

Globally, the most significant upcoming election is in the US, but of course, the UK election is also expected towards the end of this year.

There are similarities to US and UK politics in that it is generally a race between two parties, as the charts below show:

There appears to be greater party loyalty in the US despite how voters may feel about the leader. In all elections, the person who wins is often decided by a minority of people, the swing voters. Between 1952 and 1980, this was 12% of the electorate, and now it is thought to be around 3%.

In the UK, “swing voters” tend to revolve around age groups, and therefore, where US elections tend to be very tight, UK elections can see large majorities. Thatcher (1983 – 144 majority), Blair (1997 – 178 majority) and Johnson (2019 – 81 majority).

The question is, from a stock market perspective, does it matter who wins an election?

US Data

Two separate pieces of data indicate that annual US growth is better under a Democratic President.

The Economic Policy Institute (EPI) is a respected non-profit, non-partisan think tank. Due to its work, which is aimed at low—and middle-income families, some view it as more left-leaning.

The second piece of research is from the Joint Economic Committee, which is responsible for reporting the current economic condition of the United States and for making suggestions for improvement to the economy. This also indicates that growth is stronger under a Democratic President:

According to CNN data, the US stock market has performed better under the Democrats since 1945.

However, there isn't much difference if you consider data over a more extended period. Deutsche Bank provided this chart.

The key takeaway is that the data seems to suggest that the Democratic Party are better for the economy and markets. However, as we can see in the chart above, the actual returns have been broadly similar in recent years.

UK Data

Similar research is complicated to ascertain in the UK. However, this data from the Office for National Statistics from 1955 (Q1) to 2019 (Q2) shows annualised Gross Domestic Product (GDP).  The theory is that the higher the rate, the more the economy will grow. This slightly favours a Conservative Government.

The chart below is more relevant as it shows stock market returns.

However, this is hard to Judge as Labour from 1997 saw five financial shocks (Asian Financial Crisis, Russian Financial Crisis, Dot-com bubble bursts, September 11, and Global Financial Crisis) compared to the Conservatives from 2010 (Brexit referendum, Covid Pandemic, and Inflation).

To conclude

We cannot predict the outcome of the elections or what any new Government may or may not do. Evidence indicates that whichever party comes to power in the US and the UK makes little difference to long term stock market performance.

Stock markets and currency markets can be volatile before and after an election, but over the long term, they will adapt to the regime in power and the state of the economy. Events outside the government's control are often more likely to impact markets.

There are perhaps three things to consider irrespective of the elections:

1. Equity valuations globally (excluding the US) remain at or below their long-term averages, meaning there are long-term opportunities for returns within diversified portfolios.

2. The Inheritance Tax Band was set at £325,000 in 2009/10; this hasn’t changed at a time when house prices and other assets have.

3. Allowances for capital gains and dividends have come down, meaning more investors are paying taxes.

In conclusion, we will not position (or reposition) our investment strategy based on any upcoming elections. We maintain our long-term strategies and adapt to any new legislation and tax allowances.

General disclaimer: The data has been sourced from external sources. Although we have looked to ensure this is as accurate as possible, we are not responsible. The blog is written personally and reflects the author's view; it does not necessarily reflect the opinions of Ifamax Wealth Management. Individuals wishing to buy any product or service because of this blog must seek advice or conduct their research before making any decision. The author will not be liable for decisions made because of this blog (particularly where no advice has been sought). Investors should note that past performance does not guide future performance, and investments can fall and rise.