Ahead of tomorrow’s Budget, Dave Harris, CEO of more2life, highlights potential tax and financial pressures that could affect older clients. Advisers are being reminded of the importance of reviewing later-life planning strategies, including the potential role of later-life lending, to help clients manage costs such as council tax, inheritance tax, and other fiscal changes.
“Tomorrow’s Budget remains shrouded in mystery, but once again the rumour mill is working overtime, and there are a number of key legislative changes that – if we are to believe the media – are going to be part of the Chancellor’s Red Book.
In the last day or two, we have seen increased speculation that this Budget will place more tax strain on pensioners and older homeowners – even with an increase to the State Pension on the way. A council tax surcharge on homes above £2m, after a band re-evaluation, is being predicted, which would add increased costs for those in bands F to H. Even with an option to defer payment until a move or death, many will still fear such a rise and be worried about how they might fund the increase in costs.
Alongside this, any freeze in tax thresholds – as has also been predicted – would mean more pensioners will be pulled into income tax. LCP estimate the total number of people could rise from 8.7m to 9.3m. These shifts would land hard on those who live on fixed incomes and hold most of their wealth in their home.
We’re also being led to expect the freeze in IHT bands will run on, which would draw more families into this tax as home values keep rising. There is also talk of new limits on gifting and a shift in how gains on higher-priced homes are treated. For many older people, this would add serious doubt at a time when they want clear plans. When tax bands stay still, and values rise, the gap between income and cost grows. That brings a sharper need for safe ways to meet new bills without selling.
If these measures are to be announced tomorrow, it would become even more important than ever that older homeowners can use the wealth they have built up. Later life lending can help people meet new costs, support family, or plan ahead. We have seen the FCA accept the need for open access to these options in its Discussion Paper this year. Now we need the Government to back that view and make sure people know where to turn.
Finally, might we see any sort of stamp duty ‘rabbit out of the hat’? There’s a question around whether the Chancellor may feel she must offer some form of support to older people facing higher taxes, perhaps through a stamp duty cut or short-term holiday for those downsizing. We shall have to wait and see.
What matters is that older homeowners can talk through every route with an adviser, not just a narrow set of products, so, if they wish, they can stay in their homes and keep control of their plans.”
