“Salary Sacrifice cap may seem abstract, but the long-term effects on retirement savings could be considerable”

On salary sacrifice:

 

Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “Salary sacrifice is where an employee gives up a portion of salary in return for their employer paying an equivalent amount into their pension.

“With a £2,000 cap on the amount of earnings that can be exchanged for pension contributions that benefit from a NI exemption, many employees will either see less in their pension pots – or in their pay packets if they increase their contributions to compensate. It might seem abstract but the long-term effects on the nation’s retirement savings could be considerable.

“A cap at £2,000 is low enough to catch a lot of people using these schemes. It is also worth noting that NI relief at 8% for basic rate taxpayers versus 2% for higher rate means in some cases moderate earners are hit more, particularly those with pre-sacrifice earnings in the £40,000 to £60,000 region and making large contributions. This will include people on a typical career trajectory making catch up contributions to their pensions in later working years, and in those cases it could severely impact their retirement plans.

“Sadly, this will negatively impact retirement provision for millions of ordinary workers at a time when people need to put aside more, not less, to ensure an adequate income in their later years. It also represents another sizeable expense for many employers already struggling with cost pressures, as well as an administrative headache.”

On markets and gilts:
Oliver Faizallah, Head of Fixed Income Research at Charles Stanley, says: “Markets have taken the news in their stride for now. Following the OBR leak, gilts moved only a couple of basis points higher and have come back to flat – indicating investors see the revisions as manageable for now. The focus will remain on whether higher borrowing pressures gilt supply and complicates the path to rate cuts.”
On cash ISA limit:
Rob Morgan, Chief Investment Analyst at Charles Stanley: “The Chancellor’s £12k limit on Cash ISAs for under 65s will prompt mixed reaction. For some people who are unable to take risk with their money, they will see their tax-free options significantly curtailed. Cash ISAs are a popular and important product, especially with tax thresholds staying frozen and interest rates much higher than a few years ago. Yet there’s around £300bn sitting in these tax-free accounts, some of which could arguably be better directed towards other assets.
“Lots of people in the UK hold too much cash and not enough in investments, which is a missed opportunity to drive long term wealth creation. This reticence has negative ramifications for the success of the UK stock market and the wider economy too. While cash is essential for building short term financial resilience through an emergency fund and saving for shorter term goals, it fails to drive household wealth meaningfully forward over the longer term.

“Other assets – such as shares – don’t offer immediate security of capital, and you could get back less than you invest. Yet over long periods – five to ten years or more – leaving too much in cash could end up being more damaging to wealth than taking risks with investments, even though it’s a bumpy ride at times. That’s because cash typically struggles to significantly outpace inflation.

“Today savers are benefiting from high headline returns compared with a few years back, as well as easy, digital methods of moving money around. But they shouldn’t ignore the basic principle that keeping too much in cash can be counterproductive in the longer run.

“Directing more money into Stocks & Shares ISAs could be an opportunity to revive interest in the UK stock market which is suffering from a lack of investor interest and a dearth of IPOs.”

UK Budget: What It Means for Fixed-Income Markets and Investors

 

Evangelia Gkeka, Senior Analyst for Fixed Income Strategies at Morningstar, on the impact of today’s UK Budget on fixed income managers and investors:

“Today’s Budget reinforces a cautious yet constructive outlook for fixed income investors. For Gilt managers, gradual fiscal tightening aligns with expectations of disinflationary effects and slower economic growth, increasing the likelihood of interest rate cuts by the Bank of England. UK government borrowing costs were little changed following the OBR’s premature release of economic and fiscal forecasts, with Gilt yields showing modest movements in the grand scheme of things. This stability is positive for investors, reflecting a more predictable market environment and provides attractive entry points for long-term exposure to elevated real yields.

 

“For credit managers, stable policy and moderating inflation support corporate fundamentals, favouring financials and defensive sectors. However, slower economic momentum and challenges for cyclical sectors highlight the importance of selectivity and strong research discipline.

 

“While the Budget doesn’t materially shift the fixed income landscape, it reinforces the case for diversified bond exposure, with elevated Gilt yields offering attractive long-term opportunities despite expected volatility.”

 

Ben Mitchell, Director of Savings at Chetwood Bank, said: “Many savers, especially those approaching retirement, will be disappointed to learn that today’s budget saw the ISA allowance cut after all. This decision will require many savers to reassess how they plan for the future, as cash plays an important role in supporting resilience during periods of market volatility.

“The Chancellor’s ambition to encourage more people into long-term investment is understandable, but making everyday savings less appealing or versatile doesn’t make life easier for working people. There is no guarantee that changing the ISA rules will lead to more money finding its way into other investment assets, such as stocks and shares. ISA rules have changed repeatedly over the years at the hands of different Governments. A better option would have been to look for simplification and stability.”

 

International Corporate Tax: The Budget Reaction

 

Mark Tan, International Tax partner at law firm Spencer West LLP says:

“From an international corporate tax perspective, today’s Budget confirms that the UK is settling into a high tax, high investment model rather than trying to win a rate race. The main corporation tax rate stays at 25 per cent and the global minimum tax framework is left untouched, so multinationals get some welcome stability on the headline rate; or while already operating under global minimum tax rules, would barely feel a change. The bigger story sits around the OBR leak and the Red Book both pointing to a record tax take as a share of GDP, with most of the heavy lifting coming from personal and capital taxes rather than further rises in corporation tax. Medium term growth has been quietly downgraded, which means more of the fiscal consolidation is being carried by the people who own and work in businesses rather than by the companies themselves.

For global groups deciding where to put capital, talent and IP, that matters. The Chancellor said “if you build here, Britain will back you” and has called upon expanded investment schemes and eased listing rules to support the start-up ecosystem. Freezing income tax thresholds to 2031, increasing tax on dividends, property and savings, and tightening reliefs such as salary sacrifice and CGT relief for employee ownership all raise the cost of being a founder, senior executive or investor based in the UK. The UK offer is increasingly about rule of law, infrastructure and industrial strategy surrounding the 15% global minimum tax floor, rather than a low headline rate. That will still be attractive for some, but it makes the comparison with Ireland, the Netherlands and non-European hubs a more finely balanced conversation, especially for entrepreneurial and mobile clients.”

 

UK Budget | What this could mean for Investment Trusts – initial reaction from Will Ellis, Head of Specialist Funds, Invesco

 

Will Ellis, Head of Specialist Funds at Invesco, on what the UK budget could mean for investment trusts.
 

“The good news for investing is undoubtedly the reduction in the ISA cash cap to £12k, which is hoped to direct the savings of up £8k, that would have gone into cash instead towards stocks and shares. This is encouraging that the Government is working towards greater retail capital supporting investment into business and the better returns that may earned from investment. Whilst I can understand the exemption for over 65s of this cap owing to the potential risk appetite of that age group, this age group has the greatest number of ISA holders, so a half-measure, and with over 65s being income seeking, cash savings are likely to be eroded over time, through drawdown and lower rates. Looking ahead to the Government-supported national campaign in February this should help to direct savings into investments.

“In direct contrast to this, is the increase in tax on dividends and savings. It appears business owners paying themselves in dividends are being targeted, but this goes against the push to drive savings into investments, as it will also punish those familiar or comfortable with share investing – a group the Government is trying to encourage – and who derive an income from their savings. With all three of our trusts paying dividends, which is proven particularly attractive to investors either on the basis of passive income or providing a living income, this will be a headwind to any savings outside of a tax-wrapped vehicle.

“Considering the very limited number of IPOs, the waiving of stamp duty for new company listings for up to three years is inconsequential, and investment trusts continue to have the extra duty applied (stamp duty at the portfolio level and when they’re bought/sold), whilst other listed collectives (ie ETFs under UCITS) are excluded.”

“Taxpayers are the proverbial boiling frogs with the continued freezing of income tax allowances” – Charles Stanley

 

UK equity markets:

Amish Patel, Head of Equity Research at Charles Stanley, says: “UK equity markets seem to have taken today’s Budget in their stride as both the FTSE 100 and the domestically focused FTSE 250 are modestly higher at the moment. However, the positive reaction is largely attributed to the removal of uncertainty rather than enthusiasm for specific measures. The Chancellor chose fiscal stability over growth. Potential winners include stocks in the defence sector, which could benefit from increased government spending and commitments. Meanwhile, sectors reliant on consumer discretionary spending, such as retail and leisure, could be losers due to expected pressure on household finances. Stability is good for valuations, but the domestic earnings outlook is muted.”

 

UK income tax bands frozen for longer until 2031:

 

Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “Taxpayers are the proverbial boiling frogs with the continued freezing of income tax allowances and bands for a further three years amounting to an incrementally higher tax burden by stealth.”

 

“Budget changes to allow well-funded defined benefit schemes to pay surplus funds to scheme members over retirement age from 2027”

 

Ian Mills, Partner at Barnett Waddingham commented:

 

“Budget changes to allow well-funded defined benefit schemes to pay surplus funds to scheme members over retirement age from 2027 will likely have flown under the radar for many. While a seemingly small change, it’s an amendment that may now encourage more schemes to run-on. But perhaps most importantly, it gives companies another option beyond increasing pension liabilities – something that most are actively trying to avoid to minimise their DB pension risk.

“Running-on is typically most appealing when most liabilities are still active, so the absence of a mechanism to share surplus with younger members is a missed opportunity. With the Government estimating up to £160bn of surpluses in scope, getting these reforms right will really matter.”

 

BUDGET – Lawyer reactionary comment here

 

Yulia Barnes, Managing Partner of Barnes Law says: 
“The Government sets its priorities, but from my perspective working with higher-rate earners, entrepreneurs and property clients, the tax burden is already extremely high – and people are frustrated because they do not see results in return. Taxes are rising by another 2 percentage points on dividends, property and savings income, on top of a mansion tax, at a time when access to healthcare is limited, crime in London is unacceptable and there is growing concern over the vast sums spent on sustaining illegal immigration. Hard-working British people feel an acute sense of unfairness: they work day and night, pay more every year, yet see public services deteriorate around them. These measures risk cooling the property market further and discouraging the investment Britain urgently needs. If we want a stronger, fairer and more competitive UK, we must reward effort and enterprise – and ensure taxpayers see real value and accountability for what they contribute.”

Alistair Myles, Partner at Ribet Myles Family Law says:
“The new mansion tax will be most impactful for owners of properties between £2m-2.5m bracket.  This is likely to reduce the value of some people’s homes, and make it more difficult to sell, particularly problematic if it has already been agreed the house has to be sold at the conclusion of the divorce. This could leave families being stuck in limbo, and matrimonial settlements being adversely affected by the house not achieving the anticipated price for the home.
 
“Families are already experiencing significant distress due to the existing court delays to divorce proceedings, and the mansion tax could elongate this process even more and worsen the emotional, as well as the financial impact on families.”

 



Brokers Commentary » Commentary » Latest



Leave a Reply