Money Matters – the Spring Budget and your wealth planning

Despite Jeremy Hunt’s current working assumption that we’ll see another fiscal event before going to the polls this autumn, many had been expecting ‘rabbit out of the hat’ moments in relation to tax in the recent Spring Budget.

“These didn’t come to fruition,” explains Paul Bradshaw, Managing Director, HSBC Global Private Banking. “Instead, what we ended up with were cuts that were affordable to the government in relation to where we are with the budget deficit, which hasn’t slowed as rapidly as they’d hoped it would. 

Spring Budget key takeaways

• From 1 April 2024, VAT registration threshold increases from GBP85,000 to GBP90,000
• New rules for non-dom tax regime from 6 April 2025
• Higher rate of tax paid on profits from selling property cut to 24 per cent from April 2024
• Holiday let property tax breaks scrapped from April 2025
• Stamp duty land tax Multiple Dwellings Relief scrapped from 1 June 2024
  

“Capital Gains Tax for residential property disposals was cut from 28 per cent to 24 per cent, and Multiple Dwellings Relief and the Furnished Holiday lets regime are both set to be abolished,” Bradshaw points out. “What we didn’t see, was the significant changes to the current inheritance tax system that there had been rumours about – although there are modifications, which we explore below, for current non-doms. 

“But for me, the biggest single change relevant to many of our clients was the reform of the remittance basis of taxation,” Bradshaw continues. 

“This allows those who have a non-UK domicile of origin to protect their offshore income and gains from UK tax, and potentially limit their exposure to inheritance tax. 

“This will be replaced by a system based on tax residence, with anyone who has been a tax resident in the UK for more than four years paying UK tax on their foreign income and gains, this includes income and gains arising in offshore trusts, where the settlor is UK tax resident and not excluded from benefiting.”

There were also changes announced to the current inheritance tax system. Whilst the detail is going to be subject to consultation it was confirmed that from April 2025 inheritance tax will move to a residence-based system.

Bradshaw explains that for those who currently benefit from the remittance basis, the landscape is set to change quite significantly. 

“These individuals should seek input from their wealth managers on what these changes – including the 2025/2026 transition rules – mean for them, and how assets should be managed going forward.

“In fact, I actually believe that there’s a lot of thinking to be done by the professional services community in general about how these clients will be serviced in the future.”

Business as usual? 

What do these changes, and the Spring Budget in general, mean for financial planning?

“It’s business as usual, really,” says Patrick Power, Director, UK Wealth Planning & Advisory, HSBC Global Private Banking. 

“A key area that clients should be getting advice on is pensions – especially if they are in drawdown or will be soon. As of 2024, there will be intricate new rules in play around the lump sum allowance and the lump sum and death benefit allowance, which are closely related to the now abolished lifetime allowance.”

Make the most of your allowances and exceptions

Given, however, that we’re entering a new financial year, Power says that now is the perfect time to take a fresh look at the basics. 

“This means, for one, looking at your gross income and your spouse’s gross income and checking that you’ve maximised the tax allowances and exemptions available to you. 

“Have you made the most of, for example, pension contributions (where available), ISA contributions, gifting exemptions, including Gift Aid? Are assets allocated between spouses to make the most of the spousal exemption?

“How assets are allocated between spouses can impact on Will provisions. So, married couples need to have a good understanding of what their Wills say. Also, where assets are held in sole names, property and financial affairs lasting powers of attorney are essential, should either spouse suffer a mental incapacity.”

Adequate funds and surplus wealth 

“Similarly,” Power continues. “People should be asking themselves how – if applicable – they’ve allocated their investment assets between them, and what shape their short, medium and long-term investment positions are in. 

“Have you got adequate funds to cover short-term expenditure, earmarked expenditure, and emergencies? Have you allocated assets towards your medium and long-term goals? Do you have retirement plans in place?”

Finally, Power recommends that clients think about any surplus wealth: “It’s important that, rather than waiting until too much surplus wealth has been accumulated, plans are put in place early. Ensuring that there is enough liquidity to cover inheritance tax liabilities should be considered, too. Life insurance can be a great option, here. 

“These aren’t always the most pleasant topics to think about, talk about and look into, but from a financial planning and peace of mind point of view, they are essential.”