The UK Autumn Budget 2024 introduces several key tax changes that financial advisers must consider when helping clients.
The need for advice, to navigate the options for accumulation and decumulation, has never been greater. The skill of an adviser, or say a firm like Adeptli working with them, to help clients achieve good outcomes, should not be underestimated.
Focussing specifically on investments and their place in a holistic planning strategy, I’ve considered some of the areas where the Budget announcements may impact the most.
1. Capital Gains Tax (CGT) Adjustments
One of the significant outcomes of the Budget is the increase in CGT rates. The basic CGT rate on non-property assets will rise from 10% to 18%, and the higher rate from 20% to 24%. This increase means that investors may need to look more closely at how to minimise tax exposure on investment gains.
Financial advisers will likely consider even greater use of tax-efficient wrappers, such as ISAs and life assurance bonds, to shield investments from CGT when gains exceed the current exemption of only £3,000. Following the previous reductions to the CGT exemption, down c.75% in two years, higher CGT rates should focus the mind, especially when it comes to bed and breakfasting, and with any ISAs being fed automatically which could create unplanned liabilities.
For those managing substantial non-wrapped investments, the strategy may involve a more active approach to realising gains incrementally, ensuring annual CGT allowances are fully utilised each year. The elevated rates could also lead to a reassessment of asset allocation, favouring investments that generate lower taxable capital gains.
2. Investment Wrappers and Tax Efficiency
The ongoing Income Tax threshold freeze, set to continue until 2028, exacerbates the effects of inflation, pushing more people into higher tax brackets through “fiscal drag”. This reality makes tax-efficient wrappers like ISAs even more attractive, as they help mitigate the impact of these stealth taxes.
The Chancellor has continued her commitment to both Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) until 2035, so these remain key planning opportunities. Of course, the tax merits would not in isolation make them suitable (risk being the most obvious aspect) for everyone despite substantial tax reliefs, including Income Tax relief and exemption from CGT on gains, which may offset some of the increased tax burden for higher earners.
For many clients, they could find themselves with investments that now suffer multiple forms of taxation, and they will be looking for advice to meet their objectives and most likely, to minimise or avoid such additional taxation.
3. Stamp Duty Land Tax (SDLT) on Second or Additional Properties
The Chancellor announced an immediate increase in the Higher Rates for Additional Dwellings of SDLT from 3% to 5% from 31 October 2024. These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property.
Whilst it’s too early to assess the impact of this change, it may see clients reconsidering the purchase of additional properties. Buy-to-let profits were already squeezed as a result of the Summer 2015 Budget which restricted the amount of Income Tax relief landlords can claim on residential property finance costs. Later Budgets also introduced higher rates of CGT on sales of non-exempt properties (now 18% for basic rate tax payers and 24% for higher and additional rate tax payers), together with shorter timescales for the payment of the tax. The increased SDLT on purchases will further reduce the potential profits that can be achieved via property investments.
The abolition of the furnished holiday lettings tax regime from April 2025 may also cause a further lack of appeal for property investors.
Clients may look to give their funds an immediate “5% boost” by investing in other solutions capable of achieving income and growth over the longer term but with more flexibility and greater tax management.
Navigating the New Tax Landscape
Overall, the Budget’s changes emphasise the need for diversified, tax-conscious investment strategies and the use of multiple wrappers under continuous monitoring. Financial advisers will focus on structuring portfolios to balance tax efficiency with long-term growth. The importance of reviewing accumulation and decumulation plans, utilising multiple investment wrappers, and staying informed about upcoming policy shifts will be more pronounced in financial planning conversations.
With these shifts, clients will need to work more closely with advisers to explore how they can optimise asset placement, take advantage of available reliefs, and adjust financial plans to minimise tax impact for them and their families, while meeting their long-term goals.
Of course, tax (in whichever form) is only one aspect but other aspects such as flexibility, wealth transfers in life and death, and the level of complexity desired and risk to be undertaken may all be equally important to the client. This blend of considerations is exactly why advice has never been more important.
Get in touch
Obviously, these are only some high level thoughts, and any planning strategy needs to be tailored to meet an individual client’s bespoke needs.
If you would like to discuss how Adeptli can help you to support your clients as you adapt their individual planning strategies to the changing legislative landscape, please get in touch by emailing hello@adeptli.co.uk or booking in a meeting with me.
Up Next: Why not read our blog Budget 2024: The “What to do Now” Stage for Inheritance Tax
