Our 2024 year-in-review

11 December 2024

Just 12-months ago, we ended 2023 with some hope - hope that inflationary pressures were finally stabilising, offering better prospects for financial markets and global economies after two years of rising prices and high interest rates. As we reflect on the year that’s been we’d encourage you to pour a festive tipple, grab a mince pie, and settle in.

A steady first half…

It might be a stretch to say that the first half of 2024 was “plain sailing” but the hope of inflationary pressures easing did play out, and we saw the first interest rate cuts in June in Europe, the US and the UK (albeit the six rate cuts that the markets priced in at times always felt a stretch for most analysts).

The abolition of the Pensions Lifetime Allowance (LTA) and further reductions to basic tax allowances and National Insurance Contributions (NIC) came and went with the 2023/24 tax year. Then, on a very soggy 22 May at Westminster, Prime Minister Rishi Sunak surprised many when he called a General Election for 4 July.

Interestingly, Rishi’s announcement came a day after the IMF warned of a £30bn hole in UK public finances, a hole that became the much-talked-about black hole in the second half of the year.

All change

The 4 July produced the result that many predicted, and Sir Keir Starmer moved into No.10 shortly after.

However, due to the timing of the General Election, we had to wait 118 days for Rachel Reeves’ first Budget, with a couple of early announcements in late summer:

VAT on school fees was confirmed, as expected, with the treatment to commence on 1 January 2025.
In a more surprising move, winter fuel payments were removed for the majority of pensioners.

September and October then saw the Budget rumour mill go into overdrive, with the big question being whether Labour would keep to their manifesto pledge to not touch the main four taxes – Income Tax, NIC, Corporation Tax and VAT.

Many felt that, if they were to leave these key four taxes, which make up c. 76% of the tax-take, untouched then Rachel Reeves would need to be quite creative with other taxation to plug the by-then £22bn black hole.

After much time spent debating the definition of “working people”, the 30 October Budget confirmed the following:

Capital Gains Tax (CGT) rates will increase but to a level lower than many speculated.
Pension funds will now be subject to Inheritance Tax (IHT) from April 2027
Many businesses and farms and land will no longer be potentially able to qualify for full relief from IHT – from April 2026, the first £1m will be fully exempt but above that level, IHT will be charged at 20%.
Employer NIC will increase by 1.2% from April 2025 with the threshold at which NIC commences reducing notably. The headline from this was that each employee earning over £9,100 p.a. would cost the employer an additional £615 per annum.
The Chancellor confirmed the abolition of the non-dom tax regime from 6 April 2025, replacing it with a new residency-based scheme said to be simpler and with reliefs for ‘temporary visitors’. From 6 April 2025, all UK residents will be taxed on the arising basis, i.e. the taxation of their non-UK income and gains will be the same as the usual UK treatment. However a new Foreign Income and Gains (FIG) regime will be available to give individuals a tax exemption for their non-UK income and gains for their first four years of UK tax residence (so long as they have not been UK resident in any of the previous 10 years).

A week later brought the US Election, a change that has thus far been market-positive. At the time of writing, and touching a piece of wood whilst doing so, we look set to finish the year with most portfolios seeing double-digit growth in the past 12 months.

Reflections on the Budget

It is fair to say that the Budget and the changes announced have been front and centre of many conversations over the last two weeks. Here are some of my reflections:

Pensions become retirement vehicles again – if we’re honest with ourselves, the beneficial tax treatment of pensions on death has long felt anomalous and, whilst it’s natural to feel aggrieved when your long-term planning is shaken somewhat, ultimately pensions will now become retirement planning vehicles once again, rather than IHT planning vehicles. All is not lost however - whilst we await further detail on the proposed legislation that will take force in April 2027, we are hard at work devising strategies that will enable people to use their pension funds tax-efficiently to meet their own needs, which in turn can “free up” other assets for IHT planning
2025: A year for planning – given the significant taxation changes, for individuals, shareholders, business owners, farmers and landowners (due to the shorter timeframe until those changes come into force in April 2026), 2025 will certainly be a year for reviewing your position and optimising your financial strategies to meet your long term objectives.
Nothing lasts forever… - a popular question in many conversations with clients is whether these changes will ever be reversed. Or is this simply a one-way street? It’s easy to think the worst when we hear about fiscal deficits etc., however, if we look back over the last ten years, we have seen a number of unexpected, positive changes in particular to pension legislation in a period where you could certainly argue that such changes weren’t affordable. As such, whilst we always have to plan with the rules we have in front of us now, we are encouraging clients to take their time, consider all options and, where possible, keep their plans flexible.

So, from all of us here, we would like to wish you and your families a relaxing festive period and we look forward to working with you in 2025!