Financial planning under a Labour Government

The Labour Party’s election victory was widely predicted by most commentators over the last 12 months and therefore has not come as a shock to the public or the markets.

Market perspective

This expected result is good news from a market perspective, as one thing the markets don’t like is surprises (conversely the current political flux in France may create some uncertainty).

Good financial planning consists of robust analysis of risk and capacity for loss, identifying the correct investment time frame and ensuring that this is reviewed on a regular basis. In this regard nothing has changed, investments are intended to be long term, and the change of government should have no major bearing on a well-established investment strategy.

Potential tax changes

There remains a significant amount of speculation around changes in taxation allowances, exemptions and rates. It seems likely we may see changes to capital gains tax (CGT), which has been the subject of much crystal ball gazing, whilst Inheritance Tax (IHT) and associated reliefs are also potential areas of change.

At this time, nothing has yet changed. Labour’s first Budget looks set to take place in the autumn and will map out the plans over the next tax years.

With eight months of the current tax year remaining, the message is simple, use the allowances you have now. It is a nuance of the political system that any party is elected without any clear plans on what they will implement, and even then it has to be ratified by Parliament - all of which adds up to an excellent opportunity to plan proactively and use the allowances and exemptions that are still available to you.

Use pension allowances

The current pension landscape remains very attractive with an annual allowance of £60,000, no Lifetime Allowance tax charge and income tax relief across each of the marginal rates of tax.

Each of these points will come under review from the Labour Chancellor and her team. They may choose to make some changes or reductions, such as limiting tax relief on contributions to the basic rate of tax only. It is an unenviable task of balancing this against the need to encourage people to save for their retirement.

Again, it is important to use the allowances available to you now then your plan can be adapted in the future if changes in legislation come.

ISAs

In the recent past Labour have indicated that they would look to simplify the ISA landscape. I think this change would be welcomed, as the ISA is a key component to building a balanced financial plan.

ISAs have been over complicated by a number of variations/versions all of which do not mask the fact that there has been no increase in the annual allowance of £20,000 for several years.

Whilst I would welcome simplification, there is no guarantee that the allowance will increase or even remain at £20,000.

Navigating change

In a world of social media and a plethora of 24-hour news outlets, it is easy to get lost in a mass of information and misinformation. The worst thing for an induvial financial plan at this time is ‘paralysis by analysis.’

It may be that some of the current allowances reduce or disappear in due course. The new Government has a lot to do and some changes will take longer than others or may never materialise.

A good financial plan will be diversified across tax wrappers (ISA, Pension, General Investment Account, Onshore Bond) and will be well placed to adapt, and a good financial planning relationship will consist of regular contact and review meetings.