Tony Wickenden: The financial planning changes being held up by Brexit

Tony WickendenLast month’s Spring Statement reminded me of all the fiscal legislation that has not taken place due to the parliamentary preoccupation with Brexit.

Given the government’s febrile state, any proposed change considered to be contentious is more than likely being put to the back of the queue.

Two areas of most interest to financial planners and their clients are pensions tax relief and inheritance tax. Both have had a lot said about them over the past couple of years but neither has been the subject of any material proposals to change them.

Pensions tax relief

On pensions tax relief, we are regularly reminded of the £35bn tax and National Insurance contribution cost.

Only in October we had a House of Commons briefing paper set out the history of pensions reform since the introduction of the lifetime and annual allowances in 2006, with Chancellor Philip Hammond concluding there was no consensus for any more change. The phrase “he would say that, wouldn’t he?” springs to mind…

Malcolm McLean: Simpler pension tax relief is only fair

Nevertheless, the pressure for some reform will continue and – whether you agree with it or not – a flat single rate of relief and the characterisation of the incentive as a bonus, not tax relief, remain strong favourites.

Other options discussed are a move from an exempt-exempt-taxed basis to taxed-exempt-exempt, as well as a limit on the amount of tax-free cash that can be drawn.

If you like the current regime and clients have contribution capacity, investing sooner rather than later is probably worth considering.

Inheritance tax

And then there is IHT. We have already had one part of the Office of Tax Simplification review back, with the second to follow this year.

But while changes are proposed, it is important to remember that the role of the OTS is to simplify tax and how it works – it does not have the remit to change the fundamental structure of the tax; only its operation and the administrative process.

The Resolution Foundation, on the other hand, has suggested a fundamental reform to a donee-based tax structure with dramatic limitation/removal of reliefs to address what it perceives as inequality between generations and the “capital haves and have nots”.

Tony Wickenden: IHT change in the offing

The challenges identified by Resolution are real but whether there is the appetite or support to address them is another thing altogether.  Certainly not right now, it seems.  And let’s not forget that, in terms of hard numbers, IHT makes up less than 1 per cent of the total tax raised by the Exchequer.

That said, let’s also not forget that over 40 per cent of the IHT yield comes from estates worth over £2m and, according to a YouGov survey in 2015, it is the most hated of the personal taxes. People affected are often very open to ideas on how to remove, limit or provide for its effects. And there is nothing like a bit of anger to generate a propensity to do seek out help.

With this in mind, advisers should always be ready to engage with those concerned. Depending on the asset mix, there is often a lot that can be done.

Tony Wickenden is joint managing director of Technical Connection (a St James’s Place Wealth Management group company). You can find him Tweeting @tecconn


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