Amy Cole: How tax simplification is disrupting financial advice

Amy Cole looks at possible tax changes which could see the advice role morph into life coach as advisers help clients roll with the punches...

Proposed changes to the inheritance tax regime and talk of a possible hike in capital gains tax have created uncertain times for the tax and financial advice industry.

The need to keep clients’ plans flexible, and bear in mind any changes that could happen in the short to medium term, has never been more important.

The current climate of tax uncertainty, combined with the financial pressures imposed on many people’s lives during the pandemic, has accelerated changes that have been taking place for some time. The need to stay in touch with clients and adapt to shifting circumstances is vital.

For example, wealthy individuals may be seeking to gift money as tax-efficiently as possible to members of the family who need it most or drafting wills, which has been pushed to the forefront of many people’s minds during the pandemic. Such steps often require careful thought and planning to ensure wealth is shared as effectively as possible, at the appropriate time.

Fluid relationship

Whereas once a tax adviser would have met their clients once a year for a catch-up about their tax returns, the relationship that now exists is much more fluid and open. Instead of recommending specific planning structures, advisers are much more likely to find themselves asking sensitive questions about how an individual’s circumstances might have changed or if there has been a death, marriage or divorce in the family. At times, this approach could seem more akin to a ‘life coach’ than it is to a traditional tax adviser.

Demand for tax support has increased during the pandemic as people come to terms with the seismic changes that have affected many areas of life. For some, the pandemic has meant a change of career; for others, life has been put on hold, and they have had time to reflect on their personal circumstances and as a result, seek to get their affairs in order. This has resulted in more requests to bring forward financial reviews.

However, just at a time when tax support and advice is in high demand, giving the right advice has become increasingly challenging. Chancellor Rishi Sunak’s Budget Statement in March stopped short of introducing the tax hikes that many people expected in order to start paying for the pandemic. Despite this, many experts believe more tax increases are likely in the next year or two.

Possible changes

Among the changes that could be implemented sooner rather than later are recommendations made by the Office of Tax Simplification (OTS) and All-Party Parliamentary Group (APPG) in its second report on proposed changes to the inheritance tax regime, which were published last July.

The current 40% rate of inheritance tax and the complex array of associated exemptions are widely perceived as complex and unfair and calls for reform in this area of taxation are strong.

One of the possible changes is the reduction in the rate of inheritance tax.  The APPG proposes that this rate will be reduced to 10% on taxable amounts up to £2m, and 20% on the balance of the estate.

At the same time, access to reliefs such as business property relief are expected to tighten bringing the rules more in line with business asset disposal relief. Overall, the tax take from these changes is expected to increase significantly, helping to address the sizeable budget deficit.

Proposed changes to lifetime gifts could also cause significant disruption to the financial plans of some high-net-worth individuals. In particular, the current exemption for gifts made out of income.

Such gifts are typically made by high earners to members of their family, and as long as the payments are made regularly and good records are kept, they fall outside of the estate for inheritance tax. However, if the proposals to restrict such gifts to either a fixed percentage of income, or a limit of £30,000 per annum go ahead, many more people could be affected by this change, including those who might wish to make a one-off lifetime gift to a child for a deposit on a house, for example.


In other areas of taxation, there is increased speculation about an increase in the rate of capital gains tax, to align it more closely to that of income tax. Those looking to make significant disposals within the next year or so may wish to accelerate their plans so that they can benefit from lower tax rates. Other possible changes could see the reduction in the current CGT annual exemption, which could see an effect on both transfers between husband and wife, and also disposals within discretionary managed portfolios.

With so much uncertainty surrounding what the tax system will look like in the future, it is vital that wealthy individuals have access to a tax adviser they can trust. As well as helping to keep financial plans as flexible as possible in the short term, these trusted individuals will be able to advise on where it might make sense to bring forward decisions to mitigate a potential increase in their tax liability. Advisers have always been focused on understanding what their clients want from life, for themselves and for their families, but their role has become more important than ever.

Amy Cole is a private client tax senior manager at Menzies LLP