Spring is officially here, and I am here for it! When the sun is shining it just makes everything feel so much better and with the current state of world affairs, this surge of vitamin D couldn’t come soon enough!

The saying that ‘a week is a long time in politics is really ringing true’! We seem to be living in a world where the goal posts are constantly changing and the noise that I referred to in my last update is getting louder.  The road ahead feels a little uncertain right now, with 2025 shaping up to be the start of a pivot from some of the economic, political and societal foundations that have bound us over the past fifty plus years. Change naturally brings uncertainty and subsequently often volatility, but it is important to remember that both things also bring opportunities and hence your financial planning is more important than ever.

I thought today, I would try and break through some of the noise and bring you some of the key headlines before concluding on a special segment focused on inheritance tax and changes to pensions.  

🌍 What is going on in the world?

Macro & Global Market Overview

• US Recession Fears & Trade Tensions – The US dollar has dropped to a three-month low as fears of a "Trumpcession" grow, driven by new tariffs on China, Canada, and Mexico. While the US government expects manufacturers to absorb these tariffs, economists warn of potential stagflation.
• Markets would take any sign that Trump is prepared to roll back on some of his tariff proposals if deals can be signed with Canada and Mexico as a positive.
• Rallying of Europe and UK around Ukraine following the unfolding of very unpleasant scenes in The Oval Office last Friday.
• Asian Markets continue to offer compelling investment opportunities driven by rapid economic growth, technological advancements and shifting global trade dynamics- with China and India leading the surge. Vietnam is also predicated to have the fastest growing middle class by 2029. All which present potential opportunities in the current market climate.
• Global Borrowing at Record Highs – Sovereign debt issuance is set to hit $12.3 trillion this year, with the US and China leading the charge.
• BP’s Energy Pivot – In a significant strategy shift, BP has announced a 70% reduction in its green energy investments, choosing instead to refocus on oil and gas.

🌍 Turning our focus closer to home – What is going on in the UK?

• Defence Spending & Economic Growth – Prime Minister Keir Starmer has pledged an annual £6 billion increase in defence spending, aiming to strengthen national security and create high-quality jobs. This move is expected to boost the UK's defence industry and overall economic growth.
• UK Productivity Concerns – A new study from the British Business Bank reveals that UK SMEs are increasingly reluctant to borrow, with only 43% accessing finance (down from 50% in 2023). This hesitation is contributing to lagging productivity compared to other G7 nations.

As always diversification is the magic source, and this is both across geographies and asset classes. But also remembering that when you are looking to invest you are thinking about the medium to longer term. If you require access to your capital in a shorter timeframe then you want to be considering cash management, premium bonds and other liquid assets that give you the flexibility, stability and access to capital quickly that you require.

It isn’t just markets that are presenting us with change, in the UK, Rachel Reeves Autumn Budget led to significant changes to taxation predominately focused on businesses, farmers, capital gains tax, pensions and inheritance tax.  Reeves spring budget is scheduled for the 26^th of March, where she is anticipated to refine some of policies that she has bought in.

Often, we are all guilty of worrying ourselves with speculation and one thing that I have learnt over the past ten years working in finance is not to over speculate. We can only work with the knowledge that we have and need to make our money work for us within the fiscal environment we are in currently. Once we have clear detail on any changes, I will then look to provide some commentary around this.

Special Segment- Planning for change: Pensions and Inheritance Tax in the UK - (IHT)

In the autumn budget it was announced that from April 2027, there will be significant changes to inheritance tax (IHT) regulations with one key areas we do know is changing is pensions, namely that most unused pension funds and death benefits will be included within the value of a person's estate for IHT purposes.

Historically, pensions have been an effective tool for wealth transfer, often utilised last due to their favorable IHT treatment. However, with these impending changes, it is time to rethink your estate planning strategy and remember with every change comes new opportunities.  

For example, with regards to the pension you may want to consider who is the beneficiary of the pension. Under the new legislation if you pass away before the age of 75, your pension can be passed to your beneficiaries without any further tax to pay (other than IHT from 2027). If you pass away above age 75, not only may your pension pot be subject to IHT, but also it will then be taxed at your beneficiaries’ marginal rate of income tax as you come to draw it down. Making it extremely tax punitive for those who are higher, or additional taxpayers should they be inheriting pension assets. A potential consideration for this, is to change the beneficiary to skip a generation and pass down to grandchildren etc who may be able to encash using lower tax thresholds than yourselves.

Other areas to be considering:

Remember each individual has a Nil Rate Band for IHT purposes of £325,000 so you are only subject to IHT if your net estate exceeds this amount. In addition, if you own a property, you may qualify for an additional relief in the form of Residents Nil Rate Band which is an additional £175,000 per person (only applicable to estates with a total value under £2million).

Understanding Gift Allowances and Exemptions

There are many ways that you can consider gifting your assets to reduce potential future tax implications. I have listed a few key considerations below:

The UK tax system offers several allowances and exemptions that can be leveraged for tax-efficient gifting:

✔ Annual Exemption – You can gift up to £3,000 each tax year without it being added to the value of your estate for IHT purposes. If you haven't used the previous year's allowance, you can combine it, allowing a total of £6,000.

✔ Small Gifts – You can make small gifts of up to £250 to as many individuals as you like each tax year, provided they haven't benefited from your annual exemption.

✔ Gifts on Marriage or Civil Partnership – One-off gifts can be made to those getting married or entering a civil partnership, with varying allowances depending on your relationship to the recipient.

✔ Regular Gifts from Surplus Income – Gifts made from excess income, which are regular and do not affect your standard of living, can be immediately exempt from IHT. Proper record-keeping is essential to demonstrate this pattern.

Strategic Gifting Options

To effectively reduce your estate's value and benefit your grandchildren, consider the following strategies:

💡 Junior ISAs (JISAs) – Contributing to a JISA allows your grandchild's savings to grow tax-free. The current annual contribution limit is £9,000.

💡 Junior Self-Invested Personal Pensions (Junior SIPPs) – You can contribute up to £3,600 annually into a Junior SIPP for your grandchild, with the government adding tax relief. These funds grow tax-free and can provide a substantial pension pot when they reach retirement age.

💡 Direct Payment of Educational Expenses – Covering costs such as school or university fees can be an efficient way to reduce your estate, especially given the rising costs of private education.

💡 Trusts – Establishing trusts, such as bare or discretionary trusts, allows you to control how and when your beneficiaries access the funds. Trusts can also offer tax planning advantages and are a great way to protect your legacy over the longer term.

The use of Debt

Sometimes ‘Debt’ can feel like a dirty word. Something which we are taught to not get into and often for many of us have spent our lives either avoiding and/or rapidly paying down mortgages. As many of you know, I have a contrarian view to mortgages and strategic debt, seeing it to be a way to give you flexibility and opportunity to build your wealth, if there is a clear game plan for how you would change it should circumstance change or the fiscal landscape shift.

With the changes to IHT pending, debt could have a strategic part to play. For many people property assets are one of their largest in today’s older society and therefore when considering your estate planning a mortgage may not be such a bad thing, by creating a debt in your estate not only are you able to potentially give money to loved ones in your lifetime but also reduce your overall estate and subsequent amounts that you might pay IHT upon.  

While these gifting strategies can be effective, it's key to ensure that you are balancing generosity with your financial security. Ensure that any gifts do not compromise your standard of living or future needs. Additionally, keep detailed records of all gifts, especially those made from surplus income, to support their IHT-exempt status.

With global economic uncertainty, political shifts, and potential tax changes on the horizon, strategic planning has never been more important. If you’d like to discuss how these updates impact your financial strategy, feel free to reach out.

Until next time,
Frankie 🚀