Hitting the mid 20s – what’s next? Five years on from the start of the 2020s, it’s time to take stock and look forward. Cast your mind back to 1 January 2020. Boris Johnson had become prime minister with a Conservative landslide majority of 80 seats. Across the Atlantic, Donald J Trump was president. Covid-19 had broken out in China, but was almost a month away from being declared a public health emergency of international concern. The Bank of England’s Bank Rate was at a mere 0.75%, where it had been since August 2018. As 2025 approaches, most of that picture is radically different. While today Covid-19 is almost just another flu-type virus, its economic consequences are still weighing on governments around the globe. As the pandemic took hold, the Bank of England was prompted to cut rates to just 0.1% in March 2020. However, from December 2021 rates started to climb, reaching 5.25% before reversing direction in 2024 to their current 4.75%. INFLATION IMPACT One reason for the upward long march of interest rates was the burst of inflation which hit most of the world in the wake of the pandemic. UK inflation as measured by CPI peaked at 11.1% in October 2022, its highest level for 41 years, before falling back now to near the 1.8% recorded in January 2020. As the recent US presidential election underlined, inflation’s reversion to a norm of around 2% is no solace for the public, who feel inflation over longer periods than the neat 12 months favoured by economists. In the UK prices will have risen by around a quarter in the first half of the decade. That effect of cumulative inflation, combined with higher interest rates and a return to a Labour government, means the next half of the decade begins against a backdrop substantially changed from 2020. Have your financial plans taken account of the new landscape? For example, the 2020s’ wedge of inflation means the funds you need for a comfortable retirement are correspondingly higher, as is the level of life and income protection your family requires. At the same time, higher interest rates and a harsher tax environment could require a reassessment of your investment approach. This halfway point is a good time to pause, review and prepare for whatever the next five years might bring. ✢ The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change. 2 Rachel Reeves’s Autumn Budget, the first of the new Labour government, pointedly avoided direct tax increases on individuals. However increased employer NICs for 2025/26 are likely to test already stretched profit margins for many businesses. Additional hikes to capital gains tax, and the extension of the reach of inheritance tax, will affect business owners and others who do not consider themselves particularly wealthy. If the latest legislation has left you concerned about your estate and legacy, transferring assets to your spouse or civil partner may be enough to mitigate potential liabilities. With the prospect of reaching 100 years old forecast to treble within the next 25 years, funding care in later years will become an issue for more and more people. One thing everyone can do to prepare for retirement is ensure you have topped up any gaps in your national insurance record as much as you are able. The extended opportunity to top up missed payments will close at the end of this tax year. 03 A world of higher capital gains tax Offsetting capital losses could be one way of reducing liability at highter rates. 04 Autumn Budget outcomes Key takeaways from Labour's first Budget. 05 Last call for NICs top up Do not delay further if you are able to backfill missed NIC payments. 06 Time to review your estate planning? Restructuring business ownership could be one way to reduce IHT. 07 Could you afford to live to 100? The lack of a care funding plan in the Budget leaves uncertainty about paying expensive bills. 08 CTFs grown up – the importance of children’s savings Unclaimed Child Trust Funds can be tracked down to access funds. In this issue... This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice. © Copyright 3 December 2024. All rights reserved. FINANCIAL PLANNING Credit: Roberto Caucino/ Shutterstock.com Credit: yanikap/Shutterstock.com Credit: Nataliia Melnychuk /Shutterstock.com Credit: Dilok Klaisataporn /Shutterstock.com
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