4 financial obstacles clients may face in 2024/25, and how IFAs could help overcome them

We are on the cusp of entering the 2024/25 financial year, which may mark a change for many of your clients’ finances.

While the financial opportunities presented at the start of the tax year are evident – several allowances reset, for instance – the 2024/25 tax year may also prove challenging for some clients.

So, as 6 April rapidly approaches, here are four financial obstacles your clients may encounter in the next tax year.

1. Falling tax allowances

If your clients are unaware of the tax-efficient allowances that are set to fall in the 2024/25 tax year, now may be the time to review the ones that may affect them.

For example:

  • The Capital Gains Tax (CGT) allowance is falling from £6,000 to £3,000, after being reduced from £12,300 at the start of 2023/24.
  • The Dividend Allowance will decrease from £1,000 to just £500.

If your clients expect to offload assets in the next tax year, or receive dividends as part of their remuneration, they may pay either of these taxes for the first time or be liable for an increased tax burden.

2. Frozen tax allowances and thresholds

In addition to the reductions on some key tax allowances, others are set to remain frozen.

This includes:

  • The Income Tax Personal Allowance, which will remain at £12,570
  • The Inheritance Tax (IHT) nil-rate bands, which are set to stay at £325,000 and £175,000
  • The income limit for the Personal Allowance – for every £2 earned over £100,000, the Personal Allowance is reduced by £1, meaning your clients may have no Personal Allowance after earning £125,140 in the next tax year.
  • The additional-rate Income Tax threshold, which was reduced in 2023 and will remain fixed at £125,140.

Alongside falling tax thresholds, the above freezes could push a greater portion of your clients’ wealth into the taxable bracket (or a higher tax bracket).

3. Stubborn inflation

Moving on from the subject of tax, UK inflation is falling more slowly than many consumers and investors had hoped as 2023 drew to a close.

While the Office for National Statistics (ONS) reports that UK inflation fell from its peak of 11.1% in October 2022 to just 4% in December 2023 – an impressive decrease by any measure – progress has slowed down in the last three months.

As of January 2024, inflation held firm at 4%, suggesting that the Bank of England’s (BoE) efforts to bring the rate down to 2% had not been entirely successful. And although inflation then dipped to 3.4% in February, it may still take several months for it to finally reach the BoE’s 2% target.

Moreover, although your clients may be relieved that their money is no longer being eroded by double-digit inflation, a persistent rate of between 3% and 4% could continue to put pressure on their finances.

4. Market volatility

Although the worst of the volatility caused by the Covid-19 pandemic may be over, and many investors are hoping for the return of a bull market in 2024, your clients’ portfolios may still be subject to volatility in the 2024/25 financial year.

Several ongoing global events could contribute to further instability in the stock market, such as:

  • The Russian invasion of Ukraine
  • Escalating conflict in the Middle East
  • Elections in the UK, US, and several other countries
  • Higher-for-longer interest rates
  • Stubborn inflation.

As such, it may be wise to keep your clients updated with reassuring communications about market movements. If your clients are concerned about their portfolios, it is important that you are their first port of call – this might prevent them from panic-selling holdings or making other rash decisions.

An emphasis on lifestyle financial planning could offer your clients peace of mind

It is easy for clients to fixate on everything that is happening in the wider economy, and to worry about how this might affect their financial plan. As an IFA, one helpful mindset to encourage in your clients is one of lifestyle financial planning.

Shifting the focus from meticulous penny-counting to a more holistic approach might enable your clients to:

  • Maintain a long-term view of their investments
  • Focus on the positive aspects of their finances, such as providing for the next generation
  • Plan for and protect against unexpected events before they happen
  • Reduce their financial anxiety
  • Enjoy their money more.

Your practical, pragmatic, goals-oriented approach to financial planning could help your clients to make the most of what they have, even if factors outside of their control prove challenging for their wealth.

Get in touch

The Corbel Partners network is here to support IFAs who are committed to positive, fair, and holistic client outcomes.

To find out more about how our network could support your business, your personal development, and your clients, email hello@corbelpartners.co.uk or call 01925 637891.

Please note

This article is for general information only and does not constitute advice.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax advice.

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