By Nick Sinclair-Wilson, Chartered Financial Planner at BRI Wealth Management
1) Changes to Taxation
Starting with the obvious, as many will know the record fiscal spending through the pandemic has had a significant impact on the government’s deficit, with gross debt standing at 103.6% of GDP in March 2021 (ONS). Even with the helpful impact of higher inflation, it’s likely that the government will look to raise further funds as they aim to stabilise their finances.
Where such hikes will come from is harder to guess. Following papers from the Office of Tax Simplification on Inheritance and Capital Gains Tax. The government has confirmed it plans to take no recommendations from the former, and while some of the latter’s are accepted or under consideration, they are predominantly associated with the administration of Capital Gains rather than any significant changes to the tax itself. Of course this does not rule out taxes rises in these areas, but might make them less likely.
The one exception relates to Enterprise Investment Schemes, with the Government confirming they intend to review both the capital and income tax relief functions of said schemes, a potential precursor to the 2025 sunset clause that is scheduled to cease income tax relief for Enterprise Investment Schemes and Venture Capital Trusts.
So if not here than where? A large headline grabbing tax may be unlikely, and arguably has already transpired with the changes to Corporation Tax and the Health and Social Care levy. Instead there may be a myriad of smaller adjustments in areas such as Salary Sacrifice or Dividend tax rates. The much touted reduction in higher rate pension relief or removal of the Pension Commencement Lump Sum may come to pass, but this seems unlikely given the controls on the Annual Allowance and Lifetime Allowance which can achieve a similar outcome in a more discreet fashion.
What is fairly certain is that we are unlikely to see reductions in taxation over the shorter term and therefore if clients are likely to need to crystallise gains, consider estate planning or put other planning in place it would make sense to do it sooner rather than later whilst the tax landscape is known.
2) Further Regulation/De-Regulation
With FCA’s work on Defined Benefit transfers seemingly concluded for now, further scrutiny and regulation in other advice areas is conceivable. Specifically the FCA is in the process of reviewing how it can drive practice and better protect consumers via its Consumer Duty consultation. On the positive side, the poorly conceived MiFid 2 legislation relating to 10% drop reporting may be adjusted or removed entirely, with the FCA preparing a consultation to abolish the requirements.
3) ESG Investing facing further scrutiny
ESG investing has enjoyed a meteoric rise over the last few years, with consumers showing continued demand for investment solutions that are effective and have an ethical approach. However, what has yet to attract mainstream press attention is the level of ‘greenwashing’ within the industry and the lack of universal structure or approach, a paradox in itself given then individuality of such preferences. While these issues will hopefully start resolve themselves with the introduction EU Sustainable Finance Disclosure Regulation and the FCA’s plan to introduce its own variant. Increased pressure on investment firms to demonstrate their green credentials is probable.
4) Continued Rise of Direct to Consumer Platforms
Established players within the Adviser platform market have been slowly transitioning into the consumer space, with Aviva having developed its Consumer platform over the last six years and more recently with Abrdn (formerly Standard Life Aberdeen) planning to purchase Interactive Investor. AJ Bell plans to launch a new commission free trading app, in part to help combat new entrants such as Robinhood Trading who may proceed with formerly shelved plans to launch in the UK. Needless to say this could result in increased cost pressure in the industry.