Copyright scotsman
With the UK Budget just one month away, people have questions. Should I be taking my tax-free cash? Is it worth selling investments or property before possible changes to Capital Gains Tax? Shall I embark on a gifting spree in case allowances are slashed or Inheritance Tax rules change? The more fatalistic say: “Whatever happens, it’s going to be bad news.” It is understandable to worry when headlines trumpet potential tax changes, but there’s a fundamental principle to remember here: it is best to make decisions based on what you know, not what might happen. Pre-Budget weeks are characterised by speculation, rumour, and educated guesswork. Pundits and think-tanks broadcast their opinions. Some of their forecasts will prove accurate, but many will not. Every time, we hear of people having made hasty financial decisions based on speculation that never materialised, sometimes to their significant detriment. In the weeks before the October 2024 Budget, widespread speculation suggested that tax-free pension lump sums might be reduced or abolished. Thousands rushed to withdraw their 25 per cent tax-free cash, fearful of losing their opportunity. The Budget came and went without such changes being announced. Consequently many of these individuals found themselves with large sums sitting in bank accounts, outside the tax-efficient pension wrapper they had spent years paying into. Some attempted to put the money back in – only to discover they’d triggered complex rules around pension recycling and faced tax penalties. HMRC has already issued a warning that tax penalties will apply in the same circumstances this year. The reality is that until Budget Day, nobody knows with certainty what will be announced. Even well-sourced predictions can be wrong. Governments change their minds; proposals get watered down or measures delayed. This doesn’t mean we should ignore the Budget – instead we should distinguish between reacting to concrete policy changes and making pre-emptive decisions. A well-made financial plan will be stress-tested and sufficiently robust to withstand various outcomes rather than on correctly predicting a single scenario. Of course, we already know about the direction of travel. A variety of tax rises were announced in 2024, most notably bringing direct-contribution pension pots into the scope of IHT from April 2027. This is a seismic change for retirement and estate planning but note the timeframe – there is time to adjust and rebalance. Here’s a truth that often gets lost in Budget season: tax considerations should inform your financial decisions, but they should never drive them. We at Calton call this letting the fiscal tail wag the planning dog, and we much prefer our planning dog to be happily wagging its own tail. Good financial planning starts with your goals, your personal circumstances, and your own timeline. Where do you want to be in five, ten, or 20 years? These timeframes are longer than legislative shelf lives. At Calton, we can construct a strategy that works towards your objectives while remaining tax-efficient under current rules. A sound financial plan should serve your life goals first, with tax optimisation as a welcome enhancement rather than the primary driver. The moment you start making decisions purely for tax reasons – especially based on changes that haven’t been announced – you have lost sight of what financial planning is about. Budgets introduce important changes, but they rarely upend well-constructed and annually reviewed financial plans. A good adviser will ensure your existing plans make sense under current rules. Are you making full use of available allowances? Is your portfolio appropriately diversified? Are your pensions, ISAs, and other tax-wrappers being used effectively? These questions matter regardless of what the Budget brings and addressing them now means you’re already in the strongest possible position. After the Budget announcement there is often a consultation period on measures before they are introduced. Your adviser will be aware of how changes affect your specific situation and be able to recommend adjustments where necessary. If you’re feeling uncertain, that’s precisely why you should speak with an adviser to review whether your plan remains fit for purpose. Whatever the Chancellor announces next month, remember good financial advice is about helping you achieve your goals across decades, not gaming the tax system. Your adviser’s job is to ensure that, regardless of political changes, your money continues working effectively towards the life you want to build. Find out more here
