After the Budget and US election result, we now know, without necessarily all of the details, the tax framework we face for forthcoming years, and how the economy that has the dominant effect on investment outcomes is likely to be governed.

We may not like either of these things, but we can at least start to think how this affects future financial planning.

US Election

Markets rallied on the US election outcome. This was partly in relief that there was a clear outcome and there won't be months of turmoil that could have been created by legal arguments around a very close result. Moreover, the outlook for the US market is seen to be better under Mr Trump’s stewardship, and the US markets tend to have the greatest effect on our clients’ investment portfolios.

However, this may come with more barriers to global trade, more inflationary pressures and geopolitical risks, especially given some of his more extreme statements of policy intent occur.

What his re-election says about the US populations’ views on women, race and global stability could be described as interesting, but not for me to get lost in here. That said, a good friend forwarded me a quote from H.L Menken, one of the most influential journalists in the US in the 1920s:

“As democracy is perfected, the office of the president represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day, the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.”

As a result of the US election the investment outlook could be seen to be more positive, but volatile. So, our financial planning mantra - of ensuring clients have cash buffers to cover forthcoming expenditure and any periods of volatility - remains valid.

The relatively small rise in capital gains tax continues to support investment to create returns assessed to capital gains rather than income, once all the more tax privileged savings options have been pursued.

The Budget

Meanwhile Rachel Reeves has delivered a tax raising budget, another double-edged sword.

Whilst it is hard to argue that more government revenue wasn’t needed to meet our desire for public services provision, the methodology chosen will have some long-lasting effects on the economy and how people should plan to pass on their wealth.

The increase in employer’s NI is likely to reduce wages in the medium term and create more inflationary pressure. Interest rates are unlikely to fall as far as many hope. This will affect the “working person” however you care to define who that is.

Bringing pensions into the IHT regime will have a material effect on many clients’ plans to pass on wealth to their children.

There is an HMRC consultation on the pension changes so the exact rules and tax implications are not yet known. When the regime is known, the art of the possible in terms of planning to maximise pension value for the family can be considered and advised upon.

In the short term, there is a logic to altering the balance between drawing on pension assets versus other investments that we will be discussing with clients.

The change to the IHT regime on business assets and agricultural property is disappointing, it risks causing the sale of excellent long-term businesses or farms to pay taxes, which can’t be any good for the job security of people working for those entities.

What does “good” look like in the future?

The new regime has to be seen as a call to action to pass on wealth sooner, and faster, once you are comfortable that your own financial needs are met, bringing the children into more discussions about family wealth earlier, and perhaps having to trust them to be the custodian of family money at a much younger age.

This will require careful thought and planning, and we are already preparing for that changed emphasis in advice at our forthcoming reviews, as well as ensuring we have the right people in the team to engage with the next generation of clients.

We also think there will be more use of life insurance to provide funds to meet inheritance liabilities that will arise on the second death of a couple.

Alternatively, I think there will be many people who take a view of spending more and saving less, effectively reducing their wealth by simply having more fun - not the worst idea…

We look forward to helping clients decide on the right course of action for them.