🌅 Good morning. The upcoming general election on the 4th July is causing a lot of debate in the Carden household. Over a very good Sunday roast in a local pub we started with the ‘Tories want mandatory National Service at 18’ and moved on to Jeremy Corbyn standing as an independent. Talking politics with young adults, ages ranging from 20 to 32 is interesting…

In this week’s Financial Stuff we’re continuing the theme and covering:

• 🎯 What tax policy changes can we expect if Labour get elected?

• 🤔 How might my investments be affected by the election?

• 🔥 What financial planning should I be doing now?

👇 Let’s get started…

🎯IN THE NEWS
What do we know about tax policies under a potential Labour government?

According to the latest YouGov poll on the 22nd May, Labour are strong leaders for victory with 46% against the Conservatives 21%. Reform UK and the Liberal Democrats are tied as the third highest polling parties, each garnering around 10-12% of the vote. The Green Party is polling around 5-8%.

The party manifestos will probably appear around the second week of June, although there are some suggestions they may be quite thin documents.

So in the meantime, I have pulled together a summary list of some of the most likely Labour proposed changes to tax policies:

General Tax Policy Changes:

1. Crackdown on Tax Loopholes:

Labour plans to close various tax loopholes, including those used by private equity managers and non-domiciled individuals, to ensure fairer tax practices and increase overall tax compliance.

2. Business Tax Policies:

 Corporation Tax: Labour will maintain the corporation tax rate at 25% for the next parliament and will not increase capital allowances.

Full Expensing and R&D Tax Credits: These incentives will continue to support business investments.

Business Rates Reform: Labour plans to replace the current business rates system with a new property tax system, potentially shifting the tax burden from tenants to landlords.

Capital Gains Tax (CGT):

No Immediate Increase in CGT Rates: While Labour has not committed to increasing CGT rates, they have left room for potential changes in the future. This creates some uncertainty for taxpayers regarding future tax liabilities.

Inheritance Tax (IHT):

1. Maintain and Potentially Increase IHT Revenue:

Labour aims to prevent cuts to IHT, which currently generates around £7 billion annually, with potential increases to over £10 billion by the end of the next parliament.

2. Reform of Key Exemptions:

Business Property Relief (BPR) and Agricultural Property Relief (APR): Labour is considering eliminating these exemptions, which currently provide significant relief for business and agricultural assets, leading to higher IHT liabilities for these groups.

Tax Treatment of Business Owners:

1. Business Asset Disposal Relief:

Labour is considering removing Business Asset Disposal Relief, which allows business owners to pay a reduced CGT rate of 10% on the sale of their business. This removal would subject business sales to higher standard CGT rates.

2. Greater Transparency and Fair Tax Practices:

Labour plans to introduce stricter tax transparency requirements for companies bidding for public contracts and may restrict companies registered in tax havens from bidding.

Pensions and ISAs:

1. Pension Reforms:

Labour has said it will review the current pensions and retirement savings landscape. It has also pledged to reverse the Conservative government's plan to abolish the lifetime pensions allowance, which they view as a tax cut favouring the wealthy. Additionally, the party plans to enhance the powers of The Pensions Regulator (TPR) to enforce better value for defined contribution (DC) schemes and promote greater consolidation across all pension schemes to facilitate investments in long-term assets.

2. Simplifying ISAs:

Labour intends to simplify the ISA landscape to make it more user-friendly and accessible, focusing on reducing complexity and promoting the use of stocks and shares ISAs.

Investment and Economic Growth:

Promoting Investments:

Labour say they will continue to support investments through measures such as full expensing and maintaining R&D tax credits. They also plan to publish a business tax roadmap within the first six months of their government to provide stability and boost investment.

 🤔 MARKET INSIGHTS
How will the market react to a Labour win?

As the UK general election approaches, you might be wondering how a Labour government could impact your investments. Well, here’s a simple breakdown of what experts are saying about the potential effects on the UK stock market.

Initial Reactions

If Labour wins, expect some short-term ups and downs in the stock market. This is common as investors react to the news and adjust their strategies. However, this initial volatility usually settles down fairly quickly as the market adapts to the new government.

Big Picture Influences

The stock market is influenced by many factors beyond just who wins an election. Global economic issues like inflation, debt, and geopolitical tensions often play a bigger role in market movements. So, while a Labour win might cause some initial changes, these broader factors will continue to shape the market.

Long-Term Trends

Historically, the market tends to return to its previous trends after an election. While markets generally prefer Conservative governments due to their business-friendly policies, the long-term impact of an election tends to be less significant compared to other economic conditions.

Sector Impacts

Some sectors might benefit from Labour’s policies, especially those related to renewable energy and infrastructure. On the other hand, sectors that might face higher taxes or more regulation, such as financial services and private equity, could see some challenges.

Investment Opportunities

A Labour government could highlight opportunities in undervalued UK stocks. Value investing strategies, which focus on buying stocks that seem undervalued by the market, might perform well. Funds focusing on smaller UK companies could also benefit under a Labour administration.

What Should You Do?

Don’t make any hasty decisions based on the election alone. It’s essential to look at the bigger economic picture and stick to a long-term investment strategy. Keep an eye on election polls and party policies to stay informed. Understanding the broader context will help you make better investment decisions.

Summary

While a Labour win might cause some short-term market changes, the long-term effects are likely to be influenced more by global economic conditions. Focus on maintaining a steady, informed investment strategy to navigate potential changes effectively.

By staying informed and considering both immediate and broader economic factors, you can better manage the UK part of your portfolio if Labour gets elected.

🔥FINANCIAL PLANNING STRATEGIES
Preparing for Change: Financial Planning To-Dos

With potential changes on the horizon, it's essential to stay ahead with your financial planning. Whether you're preparing for new government policies or simply aiming to strengthen your financial position, here are some key steps to take now.

1. Maximise Your ISA Contributions

Individual Savings Accounts (ISAs) offer tax-free growth on your investments. Each tax year, you have an allowance (£20,000 for the 2024/25 tax year) that you should aim to use. By maximising your ISA contributions, you can benefit from tax-free returns, making your investments more efficient.

2. Top Up Your Pension

Pensions are a crucial part of long-term financial planning. Contributions to your pension plan benefit from tax relief, effectively giving you a boost from the government.

If employed, make sure you’re contributing enough to get the full benefit from any employer matches, and consider additional contributions if you have the means.

If you run your own business, make sure you’re making company contributions. The earlier you invest in your pension, the more time your money has to grow.

3. Diversify Your Investments

Diversification is key to managing risk. Ensure your investment portfolio is spread across different asset classes, sectors, and geographies. This strategy can help protect your investments from market volatility and potential downturns in specific areas.

4. Build an Emergency Fund

Having an emergency fund is crucial. Ideally aim to save three to six months’ worth of living expenses in an easily accessible account. This fund provides a safety net for unexpected expenses, such as house or car repairs, and can prevent you from having to dip into your investments.

5. Keep an Eye on Tax Changes

Capital Gains Tax (CGT) and Inheritance Tax (IHT) Considerations:

CGT: Labour has not committed to increasing CGT rates but has left room for potential changes. To prepare, consider realising some gains now if you're worried about future rate increases. Spreading out asset sales over multiple tax years can also help manage CGT liabilities.

IHT: Labour may eliminate key exemptions like Business Property Relief (BPR) and Agricultural Property Relief (APR), which could increase IHT liabilities. Planning ahead by making use of current allowances and considering lifetime gifts or setting up trusts can help mitigate the impact.

6. Plan for Major Life Events

Consider any major life events that may be on the horizon, such as buying a home, starting a family, or retiring. Planning for these events now can help ensure you’re financially prepared when the time comes.

Conclusion

All of the above strengthen your financial position and are good to do irrespective of a general election and possible change of government. Maximising your ISA contributions, topping up your pension, diversifying your investments, and planning for possible changes to CGT and IHT are just a few ways to stay ahead in your financial planning.

😎AND FINALLY…
Protests in Majorca

I’m looking forward to a holiday in Majorca soon, so was concerned to hear about the protests there this week, which I understand are primarily focused on anti-tourism sentiments.

Apparently the demonstrations are driven by concerns over tourist overcrowding, which locals argue is leading to a significant negative impact on their quality of life and the environment.

Key issues include the strain on local resources, such as water and electricity, the rising cost of living, particularly in terms of housing, and the general degradation of the local ecosystem and landscape due to the influx of tourists.

Protests have been organised by groups such as GOB (Grup Balear d'Ornitologia i Defensa de la Naturalesa) an environmental organisation based in the Balearic Islands which criticises the current tourism model for ignoring the realities of the islands and causing long-term damage.

They highlight that the infrastructure developed to support tourism is disproportionate to the needs of the local population, who bear the costs without reaping equivalent benefits.

The protests are part of a broader movement seen across various Spanish tourist destinations, including the Canary Islands (I also visited there earlier in the year), where similar issues have sparked significant demonstrations.

The overarching message from the protesters is a call for sustainable tourism practices that protect local culture, environment, and residents' livelihoods.

Seems fair enough to me.

That’s all for this week! Hope you enjoyed and if you have any questions drop me a note.

Hilary 😎

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