New government – new financial plan?

With the new Labour government now in seat, speculation continues around how it will approach taxation, and the potential implications for investors and wealth holders. The government has pledged not to increase rates of income tax, national insurance or VAT, but with the public purse already stretched, there are questions being asked about whether other taxes could be raised to fund its spending ambitions.

While the prospect of change can be unsettling, it can present a good opportunity to review your finances to ensure you’re making the most of any existing tax reliefs and allowances. Any changes to current tax rules are unlikely to be immediate – or even announced before the Chancellor’s Autumn Statement, which is likely to take place in October or November. And with the UK economy seemingly on a more even keel, tax changes could be pushed back until 2026.

Here, we look at some of the key areas in focus and recap the tax-free allowances currently available.

Capital gains

Capital gains tax (CGT) is one area that’s attracted particular media attention, even though the Chancellor has said there are no plans to raise rates. As a reminder, and at the time of writing, individuals can currently make a profit of up to £3,000 per tax year without paying tax on it. You can also offset any losses against it – from the same or previous four tax years.

If you don’t use your CGT allowance in a given tax year, you cannot carry it forward, so if you’re thinking of selling some assets, it’s worth considering how you could best make use of it. Transferring assets to your spouse or civil partner does not normally trigger CGT, so can be an effective way to maximise use of both partners’ allowances.

Any profits above the annual allowance are taxable. Current CGT rates are relatively low compared to income tax. For example, higher- or additional-rate taxpayers pay 20% on the sale of most assets, except residential property, which is taxed at 24%. If you’re worried rates could rise, you might consider realising some gains at current rates, or storing up any allowable losses to use in future years. However, it’s important to not to rush any decisions, especially when no changes have been announced. And broad commentary like this article, always needs to be considered alongside your unique, personal circumstances and goals.

Retirement savings

The government has promised a full review of the pensions landscape to improve outcomes, which means changes here too are possible. Given the scope of the review and likely need for industry consultation, these changes are hard to predict and may take some time to finalise.

In the meantime, pensions remain a very tax-efficient way to save for retirement. Assets held in pensions are free of tax, including CGT, and there is also tax relief on any contributions, up to certain limits.

Most individuals can save up to £60,000 tax-free in a pension every year, although you can’t pay in more than you earn (or more than £3,600 if you earn less than this). The annual allowance includes your and your employer's contributions and the amount paid in by HMRC. For very high earners, however, the annual allowance reduces by £1 for every £2 earned over £260,000 – down to a minimum of £10,000.

There is currently no limit on how much you can hold in a pension for tax purposes. The previous Lifetime Allowance (LTA) – which was set at £1,073,100 in tax year 2023/2024 – was abolished by the previous government and there are currently no plans to reinstate it.

You can take up to 25% of your pension pot tax-free, up to a maximum of £268,275. This is usually possible from age 55 (57 from 2028) but does depend on your provider. Any additional money withdrawn is taxed at your marginal rate like any other earnings. It’s important to note that once you start drawing an income from your pension (beyond the 25% lump sum), your annual allowance is reduced to £10,000.

Individual Savings Accounts (ISAs)

Labour has hinted it could simplify ISAs to encourage more savings and investment. There are currently several different types – including Cash ISAs and Stocks and Shares ISAs, the Lifetime ISA, (which has more specific conditions attached) and the more niche Innovative Finance ISA.

ISAs offer a flexible way to save and invest tax-efficiently, and no tax is due on any money withdrawn. At present, you can contribute up to £20,000 each tax year, which will be sheltered from tax on interest, dividends or capital gains. You can spread your allowance across one or more ISA types (to a maximum £4,000 per year for Lifetime ISAs) – and you can now pay into multiple ISAs of the same type each year (staying within the total £20,000 allowance).

You don’t need to fly solo

Regardless of the political party in power at any moment in time, making hasty decisions when it comes to your wealth is rarely a good idea, especially when based on speculation. The Chancellor’s Budget statement (likely) in the autumn should bring some welcome clarity on any near-term changes. In the meantime, consider revisiting your financial plans and reflecting on whether they still support your long-term goals.

Broadly speaking, there is value in being proactive, rather than reactive, with financial planning. Rules around taxation are complex, so it’s important to seek professional advice, especially in a changing environment, to ensure your assets are managed as efficiently as possible.

As always, we will proactively update you when there are concrete changes to fiscal policy that are relevant to your wealth.