Tax changes risk ‘stymying’ willingness to invest, warn key commentators

31 October 2024

The Budget proved a “mixed picture” for the UK’s savers and investors, with pension savers breathing a sigh of relief but retail investors left in the cold, commentators said.

Despite growing speculation that the government would scrap or reduce pensions tax-free cash, the Chancellor refrained from announcing changes.

Dan Olley, CEO of Hargreaves Lansdown, said: “Clearly, the Chancellor was listening when it comes to tax-free cash in pensions, and protecting those who have done the right thing, steadily investing in their retirement accounts to secure their financial future.

“Investing for later life is a long-term endeavour and so stability of policy is key if we want more people across the UK to benefit from the power of compounding to deliver a comfortable retirement.”

However, experts warned that changes to the rate of capital gains tax and inheritance tax “risk stymying future investment and introducing unwanted confusion for personal financial planning.”

The Chancellor, who made no secret of the fact the Government faces difficult choices as it seeks to plug the £22 billion ‘black hole’ in its finances, has raised capital gains tax to 18% from 10% at the lower rate and 24% from 20% for higher rate taxpayers. The increase will bring the figures in line with the rates currently payable on property.

PIMFA warned that the policy change would have a “detrimental impact” on consumer willingness to save and invest in the UK.

Simon Harrington, head of public affairs at PIMFA, said: “We accept that the Chancellor has sought not to place a burden on working people, however this government chooses to define them, but in targeting CGT in particular, this government risks stymying the very investment it seeks to stimulate economic growth. The government’s desire to utilise capital from pension funds to aid this has been much discussed, and we urge them not to needlessly erect further barriers for retail investors who can also play a crucial role in delivering growth.”

Whilst PIMFA supports the Chancellor’s decision to freeze the inheritance tax threshold until 2030, it pointed out that substantive changes to reliefs associated with this regime risk introducing additional complexity into the financial planning process.

“The decision to change reliefs associated with it as well as the decision to bring pensions in scope will impact the effectiveness of people’s financial plans across the country and in some cases, it may introduce doubts about the value of previous estate planning advice, specifically advice related to pensions. The value of financial advice is the certainty of outcome it can provide, and the confidence consumers can draw from that as a result. Constant tinkering with this regime diminishes the perceived value of holistic financial planning in particular.”

PIMFA has urged the government to not make further changes over the course of this Parliament.

Harrington added: “Going forward, the Government should prioritise stability over future changes. We have been very clear that the government should adopt a taxation roadmap for personal taxation similar to the approach outlined for businesses in this Budget. Doing so would be enormously helpful and reassure savers and investors who need the confidence to know how their wealth will be treated both in accumulation and decumulation.”

Olley said: “We recognise the difficult choices the government faced in today’s Budget and so it was clearly going to be mixed messages for the UK’s savers and investors. We know from our own data on financial resilience that just one in five in the UK can expect a comfortable retirement, so as a nation we need to do everything possible to make it easy for people to save and invest. Despite the gives and takes in the Budget, the most valuable investing tool we all have is time.

“With this Budget behind us, I hope that this now provides the certainty, simplicity and stability required to give the retail investors across the country the conditions they need to keep investing and achieve their financial freedom.”

Main image: ekrulila-CPOld1s-BUk-unsplash

Professional Paraplanner