Labour’s impact on pensions 

Effective from 6 April 2024, the abolition of the Lifetime Allowance (LTA) has unlocked new opportunities for retirement savings. Individuals can now contribute to their pensions beyond the previous £1,073,100 cap, benefiting from tax relief on contributions, tax-free growth, and inheritance tax (IHT) advantages.

Previously, Shadow Chancellor Rachel Reeves suggested that a Labour government might reinstate the LTA, raising concerns among future pension contributors and those considering pension drawdown. However, Labour’s recent manifesto had no mention of reintroducing the LTA, indicating that, at least for now, a Labour government is unlikely to revive this cap.

Despite this, a broader review of the pensions landscape could well be on the cards, meaning changes to the LTA and broader pension rules lingers on. Consequently, individuals may wish to take advantage of the current environment.

From the 2023/24 tax year, the amount that can be added to a pension each year while benefitting from tax relief, or ‘Annual Allowance’, was increased from £40,000 to £60,000, or up to 100% of annual earnings if lower.

Moreover, you can potentially carry forward unused allowances from the previous three years, allowing contributions of up to £200,000 in the 2024/25 tax year.

Leveraging these allowances could play a crucial role in a wider financial strategy.

Labour’s impact on Capital Gains Tax

Labour’s recent manifesto states they “will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”. However, Capital Gains Tax (CGT) is notably absent from this pledge.

As of the 6th April 2024, the CGT tax-free allowance has been cut to its lowest level (currently £3,000), making effective management of capital gains more crucial than ever. Were there to be a CGT increase, this might re-align with income tax rates (20%, 40%, 45%) as was the case from 1988 to 2008, making CGT planning a critical aspect of any robust financial plan.

Here are our top planning strategies to mitigate CGT:

• Crystallise losses: You may want to realise losses before any potential rate increase to maximise your current allowance at the current rates of CGT.
• Utilise previous losses: Use losses from prior years to reduce your current CGT liability, with up to four tax years to report a loss to HMRC.
• Specialist investments: Consider deferring CGT liability through specialist investments like the Enterprise Investment Scheme.
• ‘Bed and ISA’ strategy: Move money from a taxable investment account into a tax-free ISA each year.
• Future opportunities: The recent Spring Budget introduced by Conservative Chancellor Jeremy Hunt includes an additional £5,000 ISA allowance for investment in UK assets (the ‘British ISA’). If implemented, this could allow for a total tax-efficient allowance of £225,000 per person between ISAs and pensions.

By staying informed and proactive, you can make strategic decisions to optimise your financial planning, no matter the latest resident at 10 Downing Street.
For more advice on the recent changes, reach out to Matthew Cuoghi.