The October 2024 Budget may have been a cause for concern for your clients as chancellor Rachel Reeves announced several tax increases that might affect them. Fortunately, with our support, they can prepare for legislative changes and find ways to mitigate tax.
Still, they may be worried about what the future holds, and many clients expect more tax increases over the course of this parliament.
8 in 10 are concerned about tax increases in 2025
In November 2024, Rachel Reeves spoke in defence of her first Budget at the Confederation of British Industry (CBI) conference. During her address, she reassured business leaders that she wouldn’t introduce more tax increases in the future.
Despite this, a recent survey found that many clients are anxious she may go back on this promise and raise taxes again. According to Professional Paraplanner, 8 in 10 AJ Bell clients said they were either “very concerned” or “somewhat concerned” about further tax hikes in 2025.
If your clients are feeling similarly anxious, we can help them navigate any changes to tax legislation in the future.
We will explain how any future changes could affect your clients
Tax rules can be incredibly complex, and clients may not fully understand how they’re likely to be affected. In some cases, this might mean that they worry unnecessarily about tax rises that they could get around.
For example, the chancellor increased Capital Gains Tax (CGT) rates in her October 2024 Budget. Yet, if your clients invest solely through a Stocks and Shares ISA, they shouldn’t be affected by this change (more on this later).
One of the key benefits of working with a financial planner is that we can explain any changes and how they will affect your clients. Often, this means we can reassure clients that, despite tax changes, they can continue building wealth and working towards their goals.
In situations where tax increases will affect them, we’ll offer practical solutions to help them potentially reduce their bill.
Your clients could use tax wrappers to reduce their liability
There are several useful tax wrappers that your clients could benefit from, including ISAs and pensions.
If your clients hold their savings in a Cash ISA, they won’t pay Income Tax on any interest they generate. Alternatively, if they invest through a Stocks and Shares ISA, they won’t pay Dividend Tax or CGT on their returns. There is no tax to pay when withdrawing funds from an ISA either.
They can contribute up to £20,000 across all their ISAs each tax year. Also, this is an individual allowance, so a couple could save or invest £40,000 tax-efficiently between them.
Your clients may also benefit from reviewing their pension contributions if they’re worried about the tax they pay.
Normally, when they pay into their pension, they benefit from 20% tax relief at source. This means a £100 payment to their pension only “costs” them £80 as the government contributes the other £20. They may also be able to claim another 20% or 25% through self-assessment if they’re a higher- or additional-rate taxpayer.
Crucially, the Income Tax and National Insurance contributions (NICs) they pay are calculated after pension contributions are deducted. As such, increasing their pension contributions could reduce their taxable income and mitigate a large bill.
Bear in mind that they only receive tax relief on contributions up to their Annual Allowance. This is the total amount they can contribute to their pension – including employer contributions and tax relief – each year without triggering a tax charge. In 2024/25, the Annual Allowance is £60,000 or 100% of their earnings, whichever is lower.
However, if they’re a high earner or have flexibly accessed a defined contribution (DC) pension, their Annual Allowance may be lower.
We can assess your client’s financial situation and recommend the most effective ways to use these tax wrappers.
Careful planning could reduce the tax your clients pay when selling certain assets
If your clients have used their ISA allowance for the year and want to continue investing, they might consider purchasing shares through a General Investment Account (GIA). If they later sell these investments, they could pay Capital Gains Tax (CGT) on the profits.
They might also pay CGT when disposing of other assets including:
- Business assets
- A property that isn’t their main home
- Personal possessions worth more than £6,000 (excluding their car).
Fortunately, your clients can make gains up to their Annual Exempt Amount each year before paying CGT. In 2024/25, this stands at £3,000.
Any profits that exceed the Annual Exempt Amount will be taxed at:
- 18% if they’re a basic-rate taxpayer
- 24% if they’re a higher-rate or additional-rate taxpayer.
Your clients may be especially concerned about paying CGT as the chancellor increased the rates in her October 2024 Budget.
However, with our support, your clients can identify planning opportunities to help them reduce the CGT they pay. For instance, if your client purchased some shares for £5,000 and later sold them for £10,000, they’d make a profit of £5,000.
After applying their Annual Exempt Amount, their taxable gains would be £2,000. As a higher- or additional-rate taxpayer, they would pay £480 in CGT.
However, if your client split the sale across two tax years, they would make profits of £2,500 each year. Provided they made no other gains in those years, they would be within their Annual Exempt Amount and so wouldn’t pay CGT.
Additionally, your clients can pass assets to their spouse or civil partner without CGT. While their partner might pay CGT if they later sell the assets, both parties have their own Annual Exempt Amounts. This creates more potential opportunities for tax planning.
We can work with your clients to find the most tax-efficient ways to dispose of assets.
Get in touch
If your clients are worried about future tax hikes, working with a financial planner will give them peace of mind.
They can contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
