Comment: What we want to see in the budget, and what we don’t

Budget wishlist: simplifying savings and securing stability – by William Stevens, Partner and Head of Planning at Killik & Co

 
As the government’s upcoming Budget approaches on 30th October, it’s a critical time for the UK’s spenders and savers. While speculation is rife about potential tax and pension changes, there are specific moves we’d like to see, as well as those that could disrupt the careful financial planning of millions.
 

Changes We’d Like to See

 
Simplification of Savings and Tax Systems

 
The current savings landscape, including schemes like the Lifetime ISA (LISA) and thresholds for childcare, is overly complex. Streamlining these would not only make financial planning more accessible but also help individuals maximise their savings potential without needing to navigate a maze of rules. The Income Tax system, too, could be made clearer, allowing individuals to make informed decisions with ease.
 
Active Encouragement for Savers & Investors

 
There has been much talk of how the government wants to grow the economy and support businesses. To do that, business require investment, which is derived from savers feeling confident enough to put their hard-earned money to work through investing. Uncertainty is the enemy of investment, and the current speculation around future changes to tax and legislation for savers & investors is disincentivising individuals from participating and, at worst, drawing them out of the market. Certainty around the tax wrappers used by savers, particularly pensions, is a vital step to ensure people save for their future – reducing the potential future burden on the State, particularly the State Pension.
 
Long-Term Stability in Economic Planning

 
After the turmoil of last year’s mini-budget, we need to avoid a repeat of sudden, unfunded measures that erode confidence. A clear, long-term plan with measurable goals will encourage people to make sensible, informed financial decisions. This should include keeping inflation in check and stabilising public finances, which are key to boosting business confidence and individual wealth management strategies.
 

Changes We Wouldn’t Want to See

 
Reduction of Tax-Free Cash on Pensions

 
Any reduction in the tax-free cash allowance would be incredibly disruptive. The current system allows individuals to take 25% of their pension tax-free, which is a cornerstone of retirement planning for millions. Cutting this would throw many plans into disarray, potentially discouraging pension saving and increasing reliance on an already stretched State Pension. A more measured approach, focused on encouraging savings, would be far more constructive.
 
Bringing Pensions into the Inheritance Tax (IHT) Estate

 
Including pensions within the IHT estate could cause significant complexity and confusion. This would require a fundamental rewrite of current legislation, adding to an already convoluted tax landscape. Such a move could disincentivise pension saving and create more administrative headaches for families dealing with estates after a loved one’s passing.
 
Aligning Capital Gains Tax (CGT) with Income Tax

 
While this may sound like a potential revenue-raiser, aligning CGT with income tax could backfire. It might lead individuals to hold onto assets longer, avoiding transactions for fear of a higher tax burden. This could reduce investment in the economy and, ultimately, raise less money than anticipated. Moreover, the complexity of rebasing assets and delayed implementation until the new tax year would add further confusion and risk stagnating growth.

In Summary

 
As we approach the Budget, the government must weigh the need for revenue against the broader economic and societal impacts of their decisions. Raising funds may be necessary, but any moves to disrupt pensions or CGT could harm both individual savers and the UK’s growth trajectory.

Ultimately, we hope for a budget that promotes stability and encourages long-term saving, without introducing disruptive or overly complex changes. Clear, considered reforms will empower individuals and businesses to make financial decisions that will benefit them in the years to come. Wealth managers and clients alike will be watching closely, hoping for a balanced and well-thought-out Budget.