Budget Reforms: A Wake-Up Call for Investors and Pensioners

The recent budget decisions have brought unforeseen consequences for some investors. Many of them accelerated their financial decisions beforehand without having all the information available. It remains to be hoped that their financial outlook will still be satisfactorily rounded. Financial advisors were busy before the budget, particularly with wealthy clients who were concerned about expected increases in capital gains and inheritance tax. Netwealth offered a free service to secure profits. The 25 percent of clients who took advantage of this offer are likely to feel validated by the increase in the capital gains tax rate from 20 to 24 percent. The introduction of the CGT top rate of 24 percent is seen as a strategic move by the Chancellor to maximize revenue. While an increase to as much as 30 percent was feared, many investors find this rate a relief. However, there remains concern that some investors may have realized profits too early. Another point observed ahead of the budget was the increased gifting of assets to stay within the IHT rules. Some of these endeavors might now seem hasty, as Rachel Reeves has selected pensions as a means to increase IHT revenues. Inheritance tax remains one of the most unpopular levies, despite generating relatively little revenue. The integration of pensions into the IHT framework could be sensitive for some, yet it seems logical. Martin Willis from Barnett Waddingham explains that pensions were never intended as tools for IHT planning. Asset managers like Six Degrees estimate an increase in IHT liabilities by 15-20 percent. The question of whether pension funds have to pay IHT before death benefits are paid out remains open. Retirees and savers now face the task of reconsidering their long-term plans within 18 months, as higher pension payouts are expected. Despite the concerns, Charlotte Ransom from Netwealth sees positive aspects in the situation. She describes the budget turmoil as the biggest wake-up call for reviewing personal finances in a long time. Capital gains are more in focus, yet the importance of capital gain-avoiding investments, such as stock ISAs and retirement savings plans, remains.