Affluent investors are reviewing how they structure, protect and pass on wealth amid growing uncertainty over potential tax changes that could be announced in the Autumn Budget, says Rathbones.
The wealth manager said conversations with clients are increasingly focused on the impact of potential tax reforms, including capital gains tax and inheritance tax, with speculation mounting that the Chancellor could seek to align CGT rates with income tax rates.
Previous analysis from Rathbones found that aligning CGT rates with income tax rates could significantly increase tax liabilities for investors. An additional-rate taxpayer making a £50,000 gain outside tax wrappers could see their tax bill rise from £11,280 to £21,150. Higher-rate taxpayers could see tax on the same gain increase from £11,280 to £18,800.
Isabella Gallier-Pratt, senior investment director at Rathbones, said: “Uncertainty around fiscal policy does tend to prompt people to review their financial plans, but investors should be careful not to let tax considerations alone drive major financial decisions; as the saying goes, don’t let the tax tail wag the investment dog.
“We’ve seen clients move from asking ‘What should I invest in?’ to asking ‘How exposed am I if taxes rise again?’ That’s a noticeable shift in mindset. More people are reviewing how they invest, how they structure their assets and how they’ll pass wealth to future generations. Budget uncertainty is acting as a catalyst for those conversations.”
Rathbones said offshore bonds are also increasingly becoming part of financial planning discussions, as they allow investments to grow without annual UK income tax or capital gains tax being applied year by year. Rather, taxation is generally deferred until a chargeable event occurs, such as certain withdrawals or surrender of the policy.
Matthew Smith, chartered financial planner at Rathbones, said: “Once ISA and pension allowances have been fully used, investors naturally start asking what other options are available. We’re seeing offshore bonds come up much more often as part of our financial planning conversations with clients than they did a few years ago.
“For some investors, offshore bonds offer the ability to defer tax and have greater control over when gains become taxable which can support retirement planning, estate planning and intergenerational wealth transfer objectives.
“Importantly, offshore bonds aren’t about avoiding tax. They are one option that can help build financial plans that can work effectively in a changing tax environment.”
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