One of largest tax raising Budgets in history; a new President in the White House; and UK interest rates cut for the second time in just a few months – It’s hard to remember a more dramatic couple of weeks in recent history.
The Budget
The single biggest change within the Budget from a financial planning perspective was the introduction of Inheritance Tax on pensions, forecast to be introduced from April 2027.
For the past number of years pensions have represented a very efficient way of passing on funds to the next generation, with the monies not being considered part of an individual’s estate on them passing, with the exposure to any other tax dependent on the age of death of the pension holder. This has meant many have been spending other assets to fund their retirement and preserving pensions as legacy planning tools.
The devil will be in the detail, and the changes are subject to consultation, and are not due to become law until April 2027, meaning it is sensible to get a better understanding of the new rules before acting, but in principle the changes represent a significant change in direction, and therefore may alter some clients’ retirement planning.
New US President
Some commentators have called it the greatest comeback in U.S. political history as Donald Trump became only the second President in history to be elected on non-consecutive terms. (The other is Grover Cleveland – bound to be a quiz question over Christmas).
Making the U.S. economy a central pillar of his campaign appears to have been a key reason for his victory, with promises of significant trade tariffs on imports and lower taxes.
Arguably of more importance than Trump winning the race to the White House, is the Republicans gaining control of Congress, having won back control of the Senate and maintained control of the House of Representatives. This will allow Trump a huge amount of control and potential to deliver on the pledges he made in his election campaign.
Stock market reception of Trump in the first few days has been very promising. Seen by many as pro-business and de-regulation, U.S. equity markets have jumped up to all time highs in recent days, with the S&P 500 recording its strongest day in history.
But with threats of potential trade wars and lower immigration potentially impacting the U.S. economy, and concerns around lower taxes resulting in inflation returning, more will become known over the coming months exactly how markets will respond to Trump this time around.
Interest Rate Cuts
Finally, the Bank of England Monetary Policy Committee reduced the base rate to 4.75% at their recent meeting, a move widely expected. This represents the second cut to the base rate in the past three months – reducing the cost of borrowing, and the interest earned on savings.
Possibly more interesting than the change in rate itself was some of the commentary that came with the change, with the Governor referencing the recent Budget directly and the impact this will have on the Bank’s momentum in reducing the rate further, suggesting this could now take longer as inflation expectations have increased due to the Government’s program of tax rises.
So significant changes made in recent weeks, but yet so much appears to remain uncertain…
Hazlewoods Financial Planning
Established in 1988, Hazlewoods Financial Planning are a firm of independent financial advisers. Our advisers have a combined century of experience in the financial services industry, with over 70 of these spent at Hazlewoods. Please get in touch if you would welcome a free, no obligation initial meeting.
