Monthly Archives

July 2025

Financial Planning for Expected Tax Increases

By | Tax Planning

The Widening Fiscal Gap

The fragile state of the UK’s public finances has dominated headlines in recent weeks. A combination of increased spending on defence, reversals to public service cuts, and structural pressures on welfare and healthcare budgets has caused a growing mismatch between government income and expenditure. This “fiscal gap” will need to be addressed to avoid undermining the credibility of long-term economic policy. Failing to act could weaken the pound, raise borrowing costs, and signal a lack of fiscal discipline to markets.

Likely Tax Changes in the Autumn Budget

Given the government’s commitments not to raise the three headline taxes—Income Tax, VAT, and employee National Insurance—other areas of taxation are now firmly in the spotlight. We feel that the following three tax changes are likely, which will directly affect financial planning decisions.

1. Further Freezes on Tax Bands

The government previously announced a freeze on the personal allowance and the higher-rate tax threshold until 2028. Extending this freeze even further, potentially until the end of the parliamentary term, would allow the Treasury to increase revenues without technically raising taxes. As wages rise with inflation, more people are pulled into higher tax brackets, a phenomenon often referred to as “fiscal drag.”

2. Changes to Cash Individual Savings Account (ISA) Allowances

There has been speculation that the government could reduce the maximum amount that can be saved into a cash ISA each year. Currently, individuals can save up to £20,000 per year across cash and stocks & shares ISAs. Policymakers are considering reducing the cash component while keeping the overall ISA limit unchanged. This could nudge savers towards investments or mean that future cash savings are held outside of an ISA wrapper, where interest may be taxable.

3. Reform of Salary Sacrifice Schemes

Salary sacrifice arrangements allow employees to exchange part of their salary for employer pension contributions, reducing both Income Tax and National Insurance liabilities. These schemes have grown in popularity, particularly among higher earners. A government review is currently examining whether to limit the amount of salary that can be sacrificed or to reform the rules more broadly. Restrictions could reduce the effectiveness of this key tax-planning tool.

Speculative but Possible Changes

While the measures above are more likely, other potential changes have also been discussed, though with less certainty.

Pension Tax Relief Reforms

The current system provides tax relief on personal pension contributions at an individual’s marginal tax rate. Though expensive for the government—costing over £50 billion annually—this system is integral to encouraging long-term retirement saving. Reforming it could mean introducing a flat rate of relief or capping the amount that can be claimed; however, implementation could be complex and might run counter to the goal of incentivising saving.

Wealth Tax Proposals

Talk of a wealth tax has grown louder, especially as the government seeks ways to raise revenue without affecting working people. A wealth tax could target assets over a certain threshold, but it would be difficult to administer. Collecting a wealth tax on illiquid assets such as property would create significant challenges, and public support for such a tax remains divided. While still speculative, it is an option that cannot be ruled out entirely.

How to plan around tax changes

Dealing with changes in tax legislation is an unavoidable hazard when it comes to financial planning. In recent years, we have seen numerous changes to pension legislation, affecting the amount that can be contributed each year, and how untouched pensions are dealt with on death. Inheritance Tax laws have also been tweaked, with the introduction of the Residence Nil-Rate band, and forthcoming changes to Business and Agricultural Relief. Tax efficient savings vehicles have evolved several times since the introduction of the Personal Equity Plan (PEP) and Tax Efficient Special Savings Account (TESSA) in the early 1990s.

Financial legislation is subject to frequent change, and reacting to speculation rather than confirmed policy can be risky. History has shown the dangers of pre-emptive action. For example, during a wave of speculation last year that pension tax free cash would be capped, many individuals rushed to crystallise their pensions. When the Budget was released and no such changes were made, they were left with irreversible decisions that could have carried unforeseen tax implications.

Rather than acting on rumour, it is advisable to ensure that your financial plans remain flexible so that they can adapt to change without incurring heavy costs or unwelcome tax penalties.

Focus on Tax Efficiency

In an environment where direct tax rises are politically constrained, stealth taxation through frozen allowances and capped reliefs are likely to play a greater role. This makes tax efficiency more important than ever.

A well-constructed financial plan considers not just returns, but also how much of those returns you keep after tax. Whether through ISAs, pensions, business ownership, or estate planning, there are still many legitimate ways to improve your position. Ensuring you are taking advantage of all available tax wrappers, allowances, and reliefs is essential.

Our advisers can help you navigate complex and changing tax environments. We can take a comprehensive look at your financial position—including pensions, investments, income, and inheritance planning—and identify opportunities to improve your overall tax-efficiency.

The upcoming Budget is likely to include tough choices, even if they are not considered as “tax increases” in the traditional sense. Although it may be tempting to act now in anticipation of changes, the most prudent course is to prepare your finances to be flexible, rather than reactive. Tax-efficiency should be viewed as a permanent part of any sound financial plan, and actions taken should be reviewed regularly so that they remain appropriate in light of changes to the tax rules.

Speak to one of our team to review your current strategy and ensure that it is ready for what lies ahead.

Can I afford to take early retirement?

By | Retirement Planning

When we speak to clients about their hopes for the future, taking early retirement, to enjoy travel or pursue hobbies, is often high on their list of goals. Whether this is possible or not depends on a range of factors; however, starting to formulate plans for retirement well in advance can help improve the prospects of retiring early and enjoying a comfortable retirement.

When can I retire?

Unless you hold assets that can provide an income or regular capital sum – such as property or investments – that can enable early retirement, most people will need to wait until pension provision is accessible before considering retirement. The earliest point at which you can access personal, or workplace pensions is currently age 55, although this will rise to age 57 from April 2028; however, affordability constraints mean that this age is often too early for most to consider. According to Office for National Statistics (ONS) data published in 2021, just over 3.5% of the population opt to retire at the earliest current pension age of 55.

For those that hold a Final Salary or Defined Benefit pension, each pension scheme will have rules as to when the pension benefits can be taken. Often this is set at age 65, although others may offer access at 60. Taking benefits earlier than the normal retirement date for the scheme will usually lead to a reduction in benefits for each year the pension is taken early – typically this will be a reduction of around 5% per annum, which may be sufficient penalty to dissuade pension holders from accessing pensions early.

What standard of living do I want?

Early retirement is entirely possible for many individuals, although this depends on your expectations in later life, as personal pension funds and other savings will normally be needed to bridge the gap between the point of retirement and when state pension provision begins, and then continue to support lifestyles in later life.

A good starting point is to consider the amount of income you will need during retirement, in today’s money, to begin to assess the feasibility of early retirement. All regular outgoings and costs need to be considered, such as household bills, groceries, transport costs and any outstanding loan or mortgage that needs to be repaid. On top of essential spending, holidays and travel expenditure, hobbies, leisure, and home improvements need to be accounted for, together with the cost of replacing vehicles and household items over time.

It is also important to think about the impact of increases in the cost of living. The last few years has seen the cost of gas, electricity, food, and other essentials rise faster than the headline rate of inflation. Not considering the eroding impact of rising prices could lead to a shortfall of income in later life if pension funds are accessed too early.

Increasing life expectancy

Life expectancy in the UK continues to increase. According to the ONS, a woman aged 50 now is expected to live until an average of 87 years and has a one in four chance of living to 95, while a man aged 50 has a mean life expectancy of 34 years. Along with increasing life expectancy, medical advances may enable people to stay healthier and active for longer, and as a result pensions and other sources of retirement income will need to potentially fund lifestyle choices for an increasing number of years. These factors underline the need for forward planning to ensure retirement is comfortable.

Is the state pension enough?

State pension provision will form a useful part of most people’s retirement plans; however, state pension alone is unlikely to provide a comfortable retirement. The current state pension payable to anyone with 35 or more qualifying years of National Insurance contributions is £230.25 per week, or £11,973 per annum.

Legislative changes over recent years has pushed back the age at which the state pension becomes payable. In 2018, the state pension age for men and women was set at 65; however, the state pension age has increased to 66 for anyone born between 6th December 1953 and 5th April 1960, 67 for anyone born between 6th March 1961 and 5th April 1977, and 68 for anyone born after 6th April 1978. As a result, those looking to retire early may need to rely solely on pension savings for longer.

The Retirement Living Standards report concluded that a couple looking to enjoy a moderate standard of living in retirement will need to aim to receive income of around £43,900 per annum, which far exceeds the £23,946 per annum that a couple who both receive the full state pension would enjoy. It is, therefore, crucial to begin to make your own provision for retirement to make life more comfortable.

Start planning ahead

As you start to consider your future, and how retirement may look for you, engaging with an independent financial planner at an early stage can help lay the foundations for a comfortable retirement, and consider whether retiring early really is possible.

At FAS, we understand that every individual’s circumstances are unique, and we take the time to fully understand your expectations, needs, and goals in retirement. Our experienced advisers can review existing personal pension arrangements, to ensure that they are appropriate, and analyse pension investments with the aim of improving investment performance. We can also undertake cash flow analysis, to consider the level of pension savings that need to be made to achieve your goals.

By adopting a holistic approach, we can look at wider financial circumstances, such as investments, savings, and property income, to build a comprehensive retirement plan. We can also provide a projection of the likely income you could enjoy in retirement and whether you could afford to retire early. Speak to one of our experienced advisers to discuss your existing pension arrangements and begin planning for later life.

The Importance of Market Momentum

By | Investments

Anyone who has held investments through the last five years will have encountered uncomfortable periods when market volatility has increased. The outbreak of Covid-19 at the start of the decade, the Russian invasion of Ukraine, the ill-fated Mini-Budget of 2022 that led to the downfall of Liz Truss, and more recently the global tariff shock and increased instability in the Middle East, are all recent examples of global events that have led markets to retreat in the short-term.

Given how markets have traditionally reacted to global events over recent years, some investors have been a little puzzled by the calm market conditions seen over recent weeks. The CBOE VIX index, which measures the volatility of the S&P500 index of US stocks, has barely suggested any sign of increased risk, despite the US involvement in the Israel-Iran conflict, which has the potential to lead to a regional war, and have wider implications for the global economic outlook.

Reasons behind the muted reaction

A major reason for the sanguine response to the escalation in the Middle East has been the suggestion that US involvement will be limited. We suspect market reaction would be different should the US be drawn into a wider conflict in the region. In previous periods of unrest in the Gulf, Oil prices have been driven rapidly higher, as fears grow over supply constraints, and indeed, this was also the case following the Russian invasion of Ukraine. Whilst the bombing of Iranian nuclear facilities did cause a minor spike in the price of Brent Crude, the reaction has been muted given that many feel that tensions could ultimately ease. Should oil prices remain around current levels, the potential for damage to the global economy is limited; however, actions, such as blocking the Straits of Hormuz, would undoubtedly see the price of oil soar.

Tariffs remain a threat

The instability in the Middle East is not the only current global factor that markets are seemingly taking in their stride. Away from global conflict, the tariff issue remains unresolved. Markets fell sharply immediately after the Liberation Day announcement on 2nd April and began to rebound once the US administration announced a 90-day pause a week later.

The trade deal struck with the UK recently is the first of what the US hope will be many that will be completed; however, time is running out before July 9th, when the current 90-day pause will end, and this poses the question, what happens next? Could the 90-day pause be extended, to allow additional time for deals to be struck? Will challenges questioning the legal basis of tariffs be successful? Or will Trump simply roll the dice again and reimpose the original tariff levels on trading partners? Markets will undoubtedly gain clarity in the coming weeks; however, given Trump’s unpredictability, the current market optimism runs the risk of discounting the potential for further turbulence when the 90 days expire.

Focus on fundamentals

Whilst markets grapple with geopolitical factors, other risks remain which could derail the current positive mood. We will shortly be entering the next quarterly reporting season for US equities, and markets will once again focus on the quality of US earnings, which may have been impacted by uncertainty over tariffs and weaker consumer confidence. Given the current market valuations, disappointing earnings reports could leave the valuations of some leading companies exposed.

The actions of the Federal Reserve could also pose a risk to the current positivity in global equities. Despite Trump’s regular demands that Fed chairman Jerome Powell starts to cut US base rates, the Federal Reserve have so far stayed resolute, highlighting the potential that tariffs could push inflation higher over coming months. Economists are also split as to whether any inflationary pressure would be short-lived, as companies readjust to tariff levels, or more persistent. Markets currently expect the Fed to cut rates twice this year, and any deviation from this path could lead to market disappointment.

Don’t discount market momentum

One theory that tries to explain the perceived complacency is that investment markets are simply growing increasingly numb to the seemingly endless stream of geopolitical noise and choosing to look for positive signs to support the current rally.

It is easy to build a case that suggests that current market valuations may become challenging as geopolitical factors weigh; however, market momentum remains strong, and further upside is possible in the short-term, if corporate earnings beat estimates and the Federal Reserve begin to ease the cost of borrowing. In short, markets could continue to ignore the risks and focus on positive factors that support valuations for some time to come.

As suggested in the famous quote attributed to John Maynard Keynes, “markets can remain irrational longer than you can remain solvent”. This may be an important mantra as we head through the coming weeks, if investment markets continue their upward momentum.

What action should investors take

Diversification is a key component of sound investment strategy in all market conditions. Holding a diversified portfolio can ensure that you participate in periods when markets are on an upward trajectory, but also hold other asset classes, which may be more predictable, to protect the portfolio when volatility increases and markets retreat. For example, holding a position in fixed interest securities, such as corporate and government bonds, may act as a foil to global equities exposure, and help reduce overall portfolio risk.

Given the current conditions, and potential challenges that await, investors should look to review their current portfolio, to ensure that the asset allocation not only matches their needs and objectives, but changes in market conditions. Our experienced advisers can undertake a comprehensive analysis of your existing investments and provide an unbiased opinion on whether changes should be made. Speak to one of the team to discuss your existing portfolio.