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Five things on financial advisers’ radars as we approach Tax Year End

From uncertain economic prospects to tax hikes on the horizon and rising inflation, there’s plenty for intermediaries to keep in mind as we head towards the end of the financial year.

Clients may want to bury their heads in the sand for as long as possible when it comes to their taxes. But for intermediaries, the first part of the year is an opportunity to start conversations ahead of what tends to be one of the busiest periods.

Alongside this, the need for expert advice is only going to intensify in the face of ongoing economic uncertainty. Here are five things that will undoubtedly be on the minds of financial planners as we approach Tax Year End.

Caution despite reopening of world economies

Records recently revealed that just before the spread of Omicron, the UK economy surpassed its pre-pandemic level for the first time in November. Official figures showed that GDP grew by 0.9% as Christmas shoppers took to the High Streets, making the UK economy 0.7% larger than it was before March 2020 when the UK first went into lockdown[1]. However, given widespread staff absences and the existence of Plan B restrictions throughout the festive period, economic growth forecasts for December and January have been comparatively modest.

Inflation at highest level for 30 years

In December, inflation rose to 5.4% and is expected to reach at least 6% by Spring[2] – the highest level for almost 30 years. According to the ONS, pay rises are failing to keep up with the cost of living, with wages rising at an annual rate of 3.8% between September and November compared to the 4.3% recorded for the previous three months. With supply chain blockages and rising raw material prices showing no sign of letting up, it is speculated that inflationary pressure could become entrenched[3] and impact household finances over a long-term basis. “What this means is that clients will increasingly benefit from talking to a financial adviser about tax efficient savings to optimise return potential and explore ways to invest in assets that hedge inflation,” said Steven Kransdorff, Head of Investment Product Development for VitalityInvest.

Interest rates are rising

To counteract inflation, interest rates in the UK increased again in February from 0.25% to 0.5% in its first back-to-back hike since 2004 [4]. Experts believe it is a sign of more to come. This will add an additional layer of complexity when it comes to financial planning, said Kransdorff. “With inflation and interest rates increasing, asset classes may not perform as we’ve seen over the last few years,” he said. “As market expectations change, clients will seek the expertise of advisers to ensure they are invested in a portfolio that meets their risk and return preferences.” In addition to this, while rising interest rates help savers’ money go further, pressure on cost of living mean less money is available for households.

 Tax is going to increase

With a March Budget on the cards, we already know there are tax changes on the horizon. April will see National Insurance increase by 1.25% alongside an employer increase of the same amount to help fund the NHS and social care. The Chancellor also announced last year various freezes (until 2026), including personal tax thresholds, the pensions lifetime allowance and the annual capital gains tax exemption. Even though no tax rises were added at the Autumn Budget, it remains to be seen whether other levers, such as reduced allowances for tax advantaged investments such as ISAs and pensions, will be pulled by the government to clawback Covid spending. “Despite comments made by the Chancellor, it is likely stealth tax rises will affect clients and this will go on for some time,” added Kransdorff. “Clients should therefore seek out financial advice and start planning for this now.”

Rising cost of living

Given rising cost of living amid economic uncertainty, the key for financial advisers will be to ensure clients get the most value possible from their savings and investments. Middle earners pushed into a higher tax bracket, in particular, will feel squeezed, while households will continue to feel the bite from rising energy bills and council tax hikes. All this will no doubt make saving money a priority for many clients as we approach Tax Year End. To help clients save money at this time, VitalityInvest has introduced a limited-time special offer (until 30 April 2022), which will mean lower annual product charges on all Healthy Fee Saver plan, when clients invest in Vitality funds. There’s also 0% charge on amounts above £200,000. A way to help intermediaries maximise the value of assets under advice too. Find out more.

VitalityInvest’s proposition brings together ready-made investments solutions backed by world-leading partners that have been built for your advice process.

Important information.

VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.

Past performance should not be taken as a guide to the future performance and there is no guarantee that an investment will make profits: losses may be made.

VitalityInvest makes every effort to ensure that the information provided in this commentary is accurate and complete but no guarantee or warranty is given. This commentary is for general information purposes only and is not to be relied upon in making an investment or any other decision. Nothing in this commentary constitutes investment, legal or any other advice. This commentary is for investment professionals only and any retail customers should speak to an authorised financial adviser before making any investment decision.

[1] The Office for National Statistics, Reuters, January 2022

[2] UK inflation rises to highest level in almost 30 years at 5.4%, The Guardian, January 2022

[3] Prepare for a fiscal freeze and a squeeze on the economy in 2022, The i, January 2022

[4] Bank of England raises interest rates to 0.5%, Investment Week, Feb 2022

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