And so, as surely as night follows day, another week brings another scandal for our Hindenburg of a government.
A number of Conservative party insiders, having knowledge of the date of the vote in advance, are alleged to have placed bets on a July election shortly before Rishi Sunak made his surprise announcement last month. This is, as it turns out, illegal.
Let’s be honest, worse things have happened at sea. But it is the last thing that a Conservative party, already mired in controversy, needs as it staggers around like Old Yeller waiting to be put out of its misery.
One of the cheery side effects of the incoming election has been the accompanying wall of comment about what a change of government might mean for our collective personal finances.
If you are reading this, you are probably already aware of what is said to be on the table. VAT on private school fees, rising Capital Gains Tax, changes to pensions tax relief. General financial lynching of the wealthy basically.
But if you take anything from this week’s post, make it this. Now is not the time to make irreversible financial decisions, based on what politicians say that they might or might not do.
Please note that I’m not talking here about making predictions about markets, or changes to our investment strategy based on what might happen in the next couple of weeks. The best companies in the world are going to do their thing anyway - in spite of politicians, rather than because of them.
No, I’m talking about making significant changes to your financial structure to try and protect yourself in advance from tax rises.
It can be tempting, if we sense that there is a sea change coming, to try and act in advance of what we expect to happen.
But successfully front-running any changes to be made by an incoming Labour government requires a couple of things to happen:
You have to correctly predict the result of the election. A Labour win looks a foregone conclusion, but the scale of that victory looks less certain; and
The new government actually have to do what they have said, or hinted, that they are going to do.
On point 1, let’s say that Keir Starmer and Rachel Reeves have all manner of tax rises up their sleeves that didn’t make their way into the manifesto. Would it not make sense to take the temperature of the electorate before they implemented their spicier policies? The margin of victory matters, because big change requires a big mandate (theoretically).
And on point 2 - well, anytime you are relying on a politician to do what they say that they are going to do, you are on a sticky wicket. Perhaps to get themselves into the spirit of governance, we have already seen a couple of policy “U-turns” from Labour.
Having previously stated that they would reverse the Conservatives' abolishing of the pensions Lifetime Allowance1 if they got into government, this policy was conspicuous by its absence from the Labour manifesto, and has now been abandoned altogether. A heck of a shift in just a couple of months.
Let’s just say, a couple of months ago, you chose to take well-meaning advice to take money from your pension (even though you didn’t need it) in order to be able to get that cash out before the Lifetime Allowance was reinstated. You are now in a position of having made a sub-optimal and irreversible decision, when you didn’t ever need to. An unforced error.
If you want to do a little low risk pre-election planning - making pension contributions or ISA contributions, have at it. Nothing wrong with getting money into tax-free wrappers sooner rather than later. But, if you can avoid it, it is important to avoid making irreversible Type 1 financial decisions without full clarity of the facts. That path can be laced with regret.
As the election rolls closer, the scaremongering naturally gets louder. One topic that keeps coming up time and again, is Capital Gains Tax (CGT) rates. It is mooted that on taking power, Labour will choose to raise the rates of CGT payable and perhaps significantly.
If you’ve read all 132 pages of the Labour manifesto (and God help me I have), you will see that no mention has been made of incoming CGT rises. And that potentially speaks volumes.
But maybe, just maybe, this is going to prove to be a similar issue to the Lifetime Allowance reinstatement. Either way, what can it hurt to wait a little while to see what actually comes to pass?
If Rachel Reeves announced on the 5th July that CGT rates on share sales were to rise from 10%/20% to say 20%/40% to bring them into line with income tax rates - do you not think that she would also include a “grace period” to allow people to transact before those rises came into force?? Remember, that Capital Gains Tax is only paid when someone chooses to sell an asset - and in that sense it is a “voluntary tax”.
If such a grace period were to be announced, presumably a lot of people who wouldn’t otherwise choose to sell profitable investments and pay CGT, would choose to do so if they knew that the rates were going to go up shortly thereafter.
Is this not exactly what an incoming government would want - a start of term spike in tax receipts?
Hopefully you know enough about me by now to know that I am not one to make predictions about what an incoming government may or may not do. While I, and my fellow advisers, will naturally keep a keen eye on what is being touted - I tend to file predictions about future legislation in the category marked “too difficult”. You have to base your advice on what the lay of the land is today.
More often than not, there is no downside to waiting and seeing. And if you are tempted to do something, try to make sure that the course of action that you take is one that can be reversed, the type of decision where the door doesn’t slam shut behind you after you make it.
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