Keir Starmer and his Labour party used the King’s Speech in Parliament to signal the path forward for their new government, but what does it mean for you and your personal finances?
After nearly a decade and a half in the UK’s political wilderness, the Labour Party returned to government on 4 July, having won a seismic 174 seat majority during the recent General Election.
The key policies at a glance
Although the the speech was relatively light on the real detail of the policies, there were a few key takeaways our clients should be aware of for their own personal financial planning:
Labour re-established its commitment to removing the VAT exemption on private school fees, which would see a hike in costs of 20%.
Plans were also announced for a pension schemes bill, which aims to shake up the UK pension scene. This includes faster consolidation of small pension pots, with an emphasis on having fewer people losing track of smaller pension pots by bringing them together into one main pot. The proposed Bill would also bring an improved focus on value for money and higher scrutiny of poorly-performing default investment choices. The government is also targeting pensions which don't offer proper retirement options and limit access to strategies such as flexible drawdown from an investor’s pension pot.
The government also heralded plans to bolster worker’s rights in the UK. This will place a keener eye on the self-employed and the ‘gig economy’ and could lead to a simplification of the IR35 rules for those caught out by the confusing rules for tax on contractors.
Beyond the key personal finance headlines, the new Prime Minister repeatedly reiterated his desire, laid out during the election campaign, to build a platform for stronger economic growth, which he says can place the country on a better footing, in terms of both social outcomes and its debt burden.
How does it affect you?
Pensions
Whilst the details for the new pension schemes bill are yet to emerge, we will be keeping a key eye on developments here to understand how they might improve pension outcomes for our clients.
Too often we meet clients with ‘zombie pensions’ - old-fashioned, expensive and poorly-performing pensions which are not providing good value for money and potentially costing individuals tens of thousands of pounds over their lifetimes. A renewed focus on getting these pots working again would be welcomed, however, it is something we have seen previous governments promise on, and not yet deliver.
Most notably absent, and welcomed by many, was any mention of reinstating the pension Lifetime Allowance, which caps the amount you can save tax-efficiently into your pension.
If you feel you have pensions that are not putting in the graft they should be, let us know and we can discuss with you ways to get these hard-earned savings working for you again.
Educational costs
One of the most eye-watering changes for many will be the announced 20% hike in private school fees, via the removal of the VAT exemption. This had long been mooted and therefore did not come as a surprise.
The average day school in the UK costs around £16,000 per year, with this rising to £25,000 in London and the South East. Over a typical schooling life therefore this could see parents fork out anywhere between an additional £45,000 and £70,000 in schooling fees.
Absorbing this additional cost over a child’s schooling life could be made more manageable by better tax efficiencies in other areas of your financial plans - for example making better use of available pension tax reliefs, by contributing more of your money into tax efficient investment wrappers such as ISAs, or even by exploring more sophisticated investment products, such as Venture Capital Trusts (VCTs).
Having a properly structured financial plan could help you offset, or even exceed any additional costs here and it's important you start thinking about this as soon as possible.
Planning for the future
As the months go by, we will start to get a much better idea of the details about the new government’s plans for taxes, investments, pensions and how all of this will affect our client’s financial plans.
The key to success however will be ensuring that you have a solid, well-thought out financial roadmap, which is based around you and your family’s objectives, but which has the ability to flex as situations (both those you have a say over, and those outside your control) develop.
Please reach out to your adviser if you wish to discuss how the changes announced in this article will affect you and your family’s plans going forward.
If you’re not currently a client of Nova Wealth, you can book some time to speak with us here.
Disclaimer
Capital at risk. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice. VCTs should be regarded as higher risk investments. They are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years. Owing to the nature of their underlying assets, VCTs are highly illiquid. Investors should be aware that they may have difficulty, or be unable to realise their shares at levels close to or that reflect the value of the underlying assets. You should only subscribe to new VCT shares on the basis of the relevant prospectus and must carefully consider the risk warnings contained in that prospectus. This blog post does not constitute personal advice.