With the end of the tax year looming and numerous changes from last November’s Autumn Budget coming into effect, tax planning and retirement income are top priorities for advisers as the busy end-of-tax-year period beckons.
In this exclusive article, Steve Owen, Head of Proposition (EMEA) at Morningstar Wealth, explains why advisers are perfectly placed to guide clients through shifting thresholds, rising taxes, and evolving pensions rules, helping them take timely action and secure the most tax-efficient outcomes for the year ahead.
The incoming changes announced in the Autumn Budget highlight the need for professional financial planning. While many of the changes have long lead times, now is the time to act to make the most of these planning opportunities.
Advisers are well positioned to demonstrate their value to clients by guiding them onto the best paths for their needs and circumstances, while offering calming reassurance.
Two concerns are top of mind for the advisers we work with and their clients. In our latest advice professional feedback poll, every single respondent rated tax planning as either a major or important theme for the year ahead. Income in retirement was only fractionally behind.
Our recent Budget webinar with Tony Wickenden and Claire Trott of Technical Connection covered these core themes and drilled into helpful actions and talking points for advisers.
Tax-efficiency has never been more of a planning opportunity
With all the shifts in recent Budgets, financial plans are being impacted by a multitude of different tax changes. For example, even starting at one of the most basic taxes, income tax, continued threshold freezes mean more people are being pulled into higher rate tax bands – and paying more tax overall. This in turn impacts other allowances, from child benefit to dividends.
With tax on dividends and savings income due to increase from April, wrapper choice is as important as ever. After pension and ISA allowances are used up it’s another reason for bonds to come into the planning discussion.
Inheritance tax (IHT) will also impact more families as frozen thresholds collide with rising property values and the inclusion of most pension assets from April 2027. It’s no longer a problem just for the wealthy.
Sooner is better when it comes to mitigating the impact and there are various options to explore. Small, planned actions can be more effective than larger, last-minute ones when it comes to IHT. Regular gifting from surplus income, for example, doesn’t rely on the seven-year rule. There are no limits on what clients can gift, as long as it genuinely comes from spare income.
Record keeping is the key here, and that’s something advisers can help with. HMRC demands evidence and some simple record keeping now can save the family a lot of tax and upheaval further down the line.
Pensions are returning to their intended purpose
There’s no question that pensions remain the most tax-efficient way to invest for retirement. But with most pensions included in an individual’s estate for inheritance from April 2027, a reset may be needed.
Pensions were always meant to simply provide income for the lifetime of the holder. An unintended consequence of the pension freedoms is that, over the last 10 years, pensions have increasingly become the last source of retirement income used with funds held back to pass on to the next generation.
The new IHT rules mean pensions must now be repositioned as income vehicles and not estate planning tools.
One question at the heart of this is whether investors are more concerned about income tax or inheritance tax. The answer is likely ‘a bit of both’ and may shift over time. It’ll also depend on what clients want their wealth to achieve with a secure income stream, flexibility and helping family all likely responses.
Phased or drip feed drawdown can be beneficial here, smoothing income to avoid unnecessary tax and supporting gifts out of surplus income. In most cases the answer will be a blended approach where advisers offer ongoing support and not a one-off solution.
| Tax planning talking points | Retirement income talking points |
| Inheritance tax will affect more families – taking action now avoids unnecessary pain later Pensions are no longer the default vehicle for inheritance planning – other solutions may be more suitableLifetime gifting can be an effective option – using surplus income is an underused solution but requires good record keeping | The rules can and will change again – flexibility today can protect from future uncertaintyPensions are often still the most tax-efficient way to invest for retirement – don’t let the noise distract from facts Think about what you want to achieve with your fund – the right solution will depend largely on whether income tax or inheritance tax is the biggest concern |
Rules change; they certainly have done in recent times and will do so again. A diverse and flexible approach is crucial. As we countdown to the various Budget announcements being implemented across income tax, savings, retirement income and beyond, one of the wisest investments clients can make is in their financial adviser.
Steve Owen is Head of Proposition (EMEA) at Morningstar Wealth
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