UK Edition
Middle England is gripped by a morbid fascination with the contents of Rachel Reeves’s red briefcase.
Millions of families, who have spent lifetimes building up pensions, savings and property wealth, are waiting for the inevitable blows to land.
Before we move on to the Budget on Nov 26, the Government’s already-announced tax rises are having a dramatic effect on the behaviour and the personal finances of the nation.
Wealth managers are working in overdrive. I spoke to several to see what they were doing to protect their clients and asked what those of us with more mortal salaries and assets can copy.
The most exclusive firms advise many of the roughly 80,000 people formerly known as “non-doms”, who are British residents with their primary home abroad. These people are battling Reeves’s reforms, which tightened the Tories’ existing plans to phase out the tax status.
There are rumours that the Chancellor is considering softening the changes, particularly the expansion of inheritance tax, which means UK death taxes catch people’s worldwide assets.
The rest of the financial advisers’ time is taken up, not by helping those who are going to flee the country, but by those who can’t or won’t and simply want to prepare for the next attack. The most pertinent for Telegraph readers is the ensnaring of unspent pensions into the inheritance tax net.
Many readers have reported taking tax-free cash from private pensions earlier than they had planned. This helps guard against leaving too much money inside a pension at death, and against rumours that the Chancellor could lower the amount you can take from a pension without paying tax.
This seems sensible, though there are some “pension recycling” rules to be aware of. HMRC does have powers to claw back cash if it deems you to be pre-planning to funnel a large chunk of the money withdrawn back into a pension (thereby claiming double tax relief). You can read more details on how to stay on the right side of the tax man here.
The obvious way for your family to avoid paying unnecessary inheritance tax is to give your money away – the sooner the better. There are fears Reeves could add restrictions to the various gifting rules, including my favourite, the unlimited gifts made out of “surplus income”.
David Jane, a fund manager at Premier Miton, told me many of his investors are looking for funds that pay a monthly income to use this exemption. Using the proceeds from selling units or shares is unlikely to meet HMRC’s strict criteria, which disqualifies gifts made from capital.
More families are also turning to insurance to cover the risk of enormous death duties after April 2027. Of course, the cost of insuring your life can be pennies if you’re in your 20s, and thousands of pounds a month by your 70s. Yet for some, the peace of mind is worth it.
Finally, I’ve noticed an increase in interest in another type of life insurance. So-called “investment bonds”, which are effectively a life insurance wrapper around your assets, are increasingly being used by financial advisers to help their clients cut and defer their tax bills.
Offered by the likes of Quilter, HSBC and Aviva, you will need to go through a regulated financial adviser, as these are fairly complex products. An advantage is that you have more control over when you pay tax. The bonds can also be written into a trust, and you can take 5pc of the initial investment each year without incurring income tax.
For more on how investment bonds could work for you, our resident tax expert Mike Warburton has written several helpful columns on this topic.
What the rich are doing ahead of the Budget (and what you can copy)
Fears over pensions and inheritance tax are forcing households to take action