More than three months into the 2021-22 tax year, it is now crucial that advisers urge their clients to proactively plan ahead to deal effectively with their tax liabilities.
With borrowing at extreme levels thanks to the pandemic, any increase in rates would have a major impact.
Foremost in my mind, and the areas I am speaking to clients about as a priority, are the following five key considerations:
1. Is a pensions overhaul on the horizon?
Speculation is rising that pensions could be first on chancellor Rishi Sunak’s list of targets for recouping tax in the next Budget, and it is easy to see why as tax relief on pensions is the most expensive of all, costing the UK more than £38bn in 2018-19.
Given the likelihood of changes to pension tax relief, financial advisers should provide guidance to clients on how they can maximise the benefit of the current allowance ahead of any changes.
2. Could EIS and VCT investments work?
As they are not appropriate for the majority of individuals, the benefits of the enterprise investment scheme and venture capital trust investments are often under-discussed by advisers with the clients that could benefit.
Last year, for example, these funds saw greater inflows than ever before, despite the backdrop of Covid. Clients may not be aware of these products or their personal suitability for EIS and VCT investments, so financial advisers should be proactively reaching out to discuss these where appropriate.
3. Preparation for CGT relief removal/cap
In the next Budget, the chancellor could remove or cap capital gains tax relief on a client’s principal private residence. In the 2018-19 tax year the National Audit Office reported that this relief cost the exchequer £26.7bn.
The current rates of taxation could also increase to up to 28 per cent for property, with CGT rates aligned to income tax rates.
Given the lack of visibility around potential changes to CGT, advisers should approach this challenge flexibly, recommending a range of suitable options to their clients and explaining the impact of each potential change.
4. IHT – getting affairs in order
As the rate of HM Revenue & Customs' ongoing inheritance tax investigations has slowed during the pandemic, taxpayers have been granted a unique opportunity to get their affairs in order ahead of the new tax year.
This area is often neglected and misunderstood by individuals at the best of times, so it is crucial that financial advisers help their clients to make the most of this opportunity and make sure they are aware of the impact this could have on their family's finances.
5. Will a 'wealth tax' shortly become reality?
It is not inconceivable that the chancellor may consider a one-off payment or an ongoing levy on wealth.
A 2 per cent one-off levy across the UK on household net wealth – calculated to be around £15tn – would generate the £300bn needed to cover the cost of the Covid-19 crisis, according to the Future Economies Research Centre in Manchester.