It's Over
The Budget, not us. Well, not yet.
Friend,
So it’s done, over, finito. I watched the Budget so you didn’t have to. Hopefully you didn’t.
You can Google “Budget Summary” and get back a zillion squibs telling you in detail who’s pips are going to be squeezed and where. Mine, in its entirety, is below:
𝗕𝘂𝗱𝗴𝗲𝘁 𝗦𝘂𝗺𝗺𝗮𝗿𝘆:
"𝑭𝒐𝒓 𝒂 𝒏𝒂𝒕𝒊𝒐𝒏 𝒕𝒐 𝒕𝒓𝒚 𝒕𝒐 𝒕𝒂𝒙 𝒊𝒕𝒔𝒆𝒍𝒇 𝒊𝒏𝒕𝒐 𝒑𝒓𝒐𝒔𝒑𝒆𝒓𝒊𝒕𝒚 𝒊𝒔 𝒍𝒊𝒌𝒆 𝒂 𝒎𝒂𝒏 𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒊𝒏 𝒂 𝒃𝒖𝒄𝒌𝒆𝒕 𝒂𝒏𝒅 𝒕𝒓𝒚𝒊𝒏𝒈 𝒕𝒐 𝒍𝒊𝒇𝒕 𝒉𝒊𝒎𝒔𝒆𝒍𝒇 𝒖𝒑 𝒃𝒚 𝒕𝒉𝒆 𝒉𝒂𝒏𝒅𝒍𝒆."
W. Churchill, 1904
OK, that was a bit terse. Let’s expand a little bit. The positives:
Ms Reeves was assured and confident in her delivery. If she was nervous, she didn’t show it.
The maximum pension tax-free cash amount of £268,275 was left alone (yes, leaving things no worse than they were before counts as a positive these days. Forgive me - straws are being clutched at).
Sadly, reading my trade rags, many advisers (and the Dying Legacy Media, see below) thought it was a good idea to act on the idea of tax-free cash potentially being reduced. Awkward conversations lie ahead for such folk. If you took your tax-free cash from your pension prior to the Budget, good luck in trying to squeeze that toothpaste back in the tube.
Pension tax-relief was left alone (another clutched straw). If you pay 40% income tax, it still takes just £60 of your hard-earned to get £100 in your pension pot. That’s a good deal. Take it while it’s on the table. Take advice, natch.
ISAs were left alone (final straw clutched).
And that’s about it for the positives. There were hikes in Capital Gains Tax (CGT) but these were all-but-guaranteed to happen prior to the event. In a masterful example of “framing”, the CGT changes actually felt better than what some of us (me) had anticipated.
The hike in Employer National Insurance was the most egregious thing. It’s a tax on workers, regardless of the slippery word play of the politicians. A business that has to pay 1.2% more in tax/NI is a business with 1.2% less to give to its staff. There is no magic money tree to make up the difference.
Other stuff around the fringes (Business Asset Disposal Relief, Agricultural Reliefs, Stamp Duty on second/investment properties) got hit. I don’t work with farmers and so can’t pretend I know the impact of the changes on them; they don’t seem happy. Regarding the Stamp Duty hike: can the last buy-to-let investor please turn off the lights?
As has been the case for years, virtually every tax-free allowance remains frozen, allowing inflation to do the Government’s dirty work on its behalf.
The Big Change
The big change was bringing back unspent pension pots into the Inheritance Tax (IHT) regime. In my previous essay, I had suggested this was a possibility. It was low hanging fruit. And - in honesty - I can’t grumble about this.
In 2015, when George Osbourne (Google him, he was once a thing) introduced “pension freedoms”, allowing pension funds to cascade down generations without being liable for IHT, there was a collective gasp from all involved in financial services.
No-one had seen it coming. No-one had been lobbying for it (as far as I know). Suddenly annuities became irrelevant overnight, and the stock market reacted accordingly, instantly downgrading the share prices of our historic life assurance companies.
Although, from a pure tax-planning perspective, it was a great move it was also a decidedly odd thing to introduce: personal pension funds were never designed as trust funds that the wealthy could both have access to if needed and then pass on IHT-free to their children and grandchildren.
Think about it. With personal pensions you already get:
Tax relief going in. The Government chips in with 20/40/45% of the cost, depending on your marginal Income Tax rate.
Your pension funds grow free of Capital Gains and Dividend taxes.
You can have 25% of your pot back as tax-free cash in retirement, subject to the maximum mentioned earlier.
And Mr Osbourne thought “Nah, not quite good enough. Let’s make it IHT-free as well!”
No more.
We’ve had nearly a decade of this situation being too good to be true and have nearly three more years to enjoy it: the Government is consulting on this and the reversal in the IHT situation won’t happen until April 2027. This is a very long lead-in time.
If you have significant unspent pension funds, and if paying the least IHT is what gets your juices flowing, dying between now and April 2027 would seem to make good sense, although it will interfere with your social arrangements.
As a result of The Big Change, your financial plan (the pretty graph per below) will likely be different going forward. For my client/friends, expect this change to be covered during your next Annual Planning Meeting (APM). Be still, thy beating heart! We may even discuss using some of your unspent pension fund to buy an annuity, God help me.
The point is your planner/adviser should talk about this change with you, and demonstrate potential strategies to mitigate it. But there is no rush, no need to panic. April 2027 is still a way off. Act in haste, repent at leisure, and all that.
Post-Budget: How We Look From The Outside
Honestly: not that great. Again, in the previous essay, I suggested things were looking “a bit late 1970s”. The Budget did nothing to reduce this. An Irish adviser and friend sent me this message soon after Ms Reeves sat down:
“Outside looking in … UK doesn’t seem great right now and the short term future, not very bright. Just an observation and I’m not “kicking when down”. A vibrant UK definitely helps Ireland. The wheel will turn no doubt!”
Let’s hope the wheel does turn. We have to reach bottom before we can start crawling back up. The State is bloated and out of control. There will never be enough tax to fund it. Churchill’s quote at the top of this masterpiece is as prescient now as it was 120 years ago.
Anyway, other events happening over the next few days will probably have more long-term impact on this country than the Budget. Economically and culturally, for good or bad, we follow where the USA leads. Let’s hope whoever wins, the other side will accept the result with equanimity. The last thing we need are more stateside reports from the Dying Legacy Media about “mainly peaceful protests”.
We survived the Budget. We wil survive the US election. Onwards and upwards, friend!