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Don't Let Election Sideshow take Your Eye Off The Ball

April 30, 2015

 

 

With no clear front runner, it's one of the closest elections battles we've seen for decades and potentially defined by the fact that the Scottish National Party (SNP) could become the UK's third largest party. But while it's easy to get sucked into second guessing which coalition is likely to be friend or foe of financial planners should we not end up without a majority government on 7th May, it's important that we work with the information we have now in order to benefit clients.

 

What we do know is that both the Tories and Labour have committed to bringing the Lifetime Allowance down to £1m from next tax year and both have committed to restricting tax relief for people earning over £150,000 per annum. So there is a need to identify those clients with pension funds approaching the lifetime allowance limit and make use of any carry forward allowance, as well as the potential to apply for protection at the £1.25m level. This is easy enough to spot for those with personal pensions and occupational money purchase schemes, but should also be considered for clients with final salary pensions. 

 

For clients with substantial incomes and large pension pots, maximising pension contributions makes sense. Also EIS and VCT investments offer a suitable way to invest tax efficiently, and can counterbalance planned restrictions on allowances and reliefs for clients with the right risk appetite. Ensuring any planning is in place in advance of 7th May would be a good precaution.

 

We also know that a Labour government would increase the top rate of income tax to 50% and slap a 'mansion tax' on properties valued at over £2m. A removal of 'non-dom' status is also on the cards.  So identifying clients affected and putting in place a strategy to deal with these potential changes is advisable.

 

And while Labour has so far kept any plans for changes to inheritance tax under wraps, we do know that they are ideologically opposed to raising inheritance tax relief thresholds, preferring to focus on policies that promote greater distribution of wealth. So what we can say with some degree of certainty is that inheritance tax planning vehicles, particularly trusts, could come under attack under a Labour government. Again, identifying clients most likely to be affected and putting in place a strategy to keep financial plans on track is essential.

So let's enjoy the election sideshow, but as we head towards what's likely to be a period of political uncertainty, let's also work with the information we have in our possession now and use it to make sure clients financial plans remain on course no matter what the outcome is on May 7th.

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