Tag Archives: Blog
What is the Laffer Curve Shape and the UK's Decision on Capital Gains Tax Rates?
The Laffer Curve, conceived by economist Dr. Arthur Laffer, illustrates the relationship between tax rates and government revenue. While Laffer popularized the term, the idea has been around since the 14th century, with roots in the writings of Muslim philosopher Ibn Khaldun and references in John Maynard Keynes' work.
In essence, Laffer's theory posits that excessively low tax rates yield insufficient revenue, while overly high rates can deter productive behavior, ultimately decreasing tax income. Activities subject to tax, such as consumption, share sales, and investments, may decline if taxed too heavily, negatively impacting government revenue.
The Laffer Curve suggests an optimal tax rate—neither too high nor too low—that maximizes tax revenue without altering taxpayer behavior. This principle is particularly relevant in the context of Capital Gains Tax (CGT) and the Chancellor's recent decision to raise this tax to 24%. While this increase fell short of the anticipated hikes, which some speculated could reach 39%, it is expected to generate some additional revenue without a substantial impact.
Why 24%?
A recent precedent exists: Jeremy Hunt reduced the CGT rate for selling second homes from 28% to 24%, effective April 2024. This adjustment was partly intended to alleviate the financial burden on second homeowners facing additional taxes elsewhere. The rationale behind this lower rate was to incentivize property sales, subsequently boosting tax revenues and freeing up housing for first-time buyers in a market desperately in need of inventory.
Advised by Treasury officials, Hunt believed 24% hit the sweet spot on the Laffer Curve.
Robert Peston remarked on X that the shift to 24% was less radical than anticipated, attributing it to HMRC's lack of resources to fully analyze the implications of a more comprehensive overhaul, leading Reeves to choose a less controversial path. However, it seems unlikely she overlooked Whitehall reports indicating that a more significant increase in CGT would likely result in reduced overall tax revenue due to behavioral shifts in investment.
Ultimately, 24% appears to be the ideal rate on the Laffer Curve, as she was likely advised. While the true rationale behind the decision may remain elusive, it underscores a shared recognition among politicians and economists of the limits to which tax rates can be raised before they lose effectiveness.
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 01763 261366 or email info@hflfinancial.com
The information available through HFL Advisory Services is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.
HFL Advisory Services is a trading name of IWP Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. FCA Reference 441359. Registered in the UK at Blythe Lea Barn, Mill Farm, Packington Park, Meriden, Coventry, West Midlands, CV7 7HE. Company Number 04138186.
How Will the 4.1% State Pension Increase in April 2025 Impact Pensioners?
Pensioners will receive an additional 4.1% per annum through the state pension starting in April 2025, thanks to the government’s ‘triple lock’ policy.
The triple lock ensures that the state pension increases each April based on the highest of the following criteria:
- The Consumer Prices Index (CPI) in September of the previous year
- The average wage growth across the UK from May to June of the previous year
- A minimum increase of 2.5%
Recent employment data released in October prompted a revision of the earnings figure, boosting it from 4% to 4.1%. This figure, being the highest of the three, will be applied to the state pension in April 2025, barring any changes. The additional 0.1% increase is estimated to cost the Treasury around £100 million.
The triple lock was introduced in 2010 by the coalition government, and Labour’s Rachel Reeves has committed to maintaining it. It was temporarily suspended in 2022/23 due to exceptional circumstances when inflation figures were distorted by the impacts of Covid-19 and furlough schemes. During that time, the earnings measure was removed to assist government finances. However, the triple lock was reinstated the following year, resulting in a remarkable 10.1% increase in the state pension.
Despite its benefits, the triple lock has faced criticism for its financial burden on taxpayers, especially since other benefits do not receive similar protections. For instance, Universal Credit, Housing Benefit, Maternity Allowance, and Statutory Sick Pay are generally linked solely to September’s CPI figure, which is expected to yield a modest 1.7% increase for those benefits.
If ratified, the state pension will change as follows:
- From £221.20 to £230.30 per week for the full new flat-rate state pension (for those who reached state pension age after April 2016)
- From £169.50 to £176.45 per week for the full old basic state pension (for those who reached state pension age before April 2016)
Stay informed about these important changes that could significantly impact your financial future as a pensioner. Understanding how the triple lock works and its implications can help you navigate retirement planning more effectively.
Sources:
https://www.bbc.co.uk/news/business-53082530
https://www.moneysavingexpert.com/news/2024/10/state-pension-benefits-rise-2025/
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 01763 261366 or email info@hflfinancial.com
The information available through HFL Advisory Services is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.
HFL Advisory Services is a trading name of IWP Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. FCA Reference 441359. Registered in the UK at Blythe Lea Barn, Mill Farm, Packington Park, Meriden, Coventry, West Midlands, CV7 7HE. Company Number 04138186.
UK Housing Market Sees Promising Sales Growth in August 2024
House sales in the UK experienced a notable increase of 5% in August 2024 compared to the same month in 2023, according to data from HM Revenue & Customs (HMRC). Approximately 90,210 homes were sold across the UK, reflecting this upward trend, although this figure saw a slight decline of less than 1% from July 2024.
The resurgence of the housing market has been bolstered by recent reductions in mortgage rates as the autumn season begins. Several mortgage lenders have lowered rates, significantly boosting buyer confidence.
Contributing factors to these improved market conditions include a reduction in inflation and the Bank of England’s cautious approach to lowering interest rates. Iain McKenzie, chief executive of the Guild of Property Professionals, noted the Bank’s effective management of inflation, which has led to more favourable borrowing conditions. He anticipates this positive trend will continue for the remainder of 2024.
Andrew Lloyd, managing director of Search Acumen, a property data insights provider, highlighted that homebuyers are eager to capitalise on these favourable mortgage rates. Nicky Stevenson, managing director at Fine & Country estate agents, echoed this sentiment, stating that lower interest rates translate to reduced monthly mortgage payments. This empowers buyers with greater flexibility in their budgets, enabling them to explore higher-priced homes, potentially stimulating further market activity.
Despite these encouraging signs, affordability remains a concern for some buyers. Jason Tebb, president of OnTheMarket, cautioned that while declining mortgage rates have enhanced buyer sentiment, sellers must be realistic about pricing, particularly if they wish to sell before the year concludes.
In conclusion, the UK housing market is demonstrating resilience, supported by stabilising interest rates and improved mortgage offers. However, ongoing affordability challenges may temper the pace of sales growth. Stay informed about market trends and make the most of current opportunities in the housing market!
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 01763 261366 or email info@hflfinancial.com
The information available through HFL Advisory Services is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.
HFL Advisory Services is a trading name of IWP Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. FCA Reference 441359. Registered in the UK at Blythe Lea Barn, Mill Farm, Packington Park, Meriden, Coventry, West Midlands, CV7 7HE. Company Number 04138186.
UK Job Market Tightens: Rising Competition and Slowing Hiring Amid Economic Uncertainty
The UK job market is facing increased competition, with over two jobseekers vying for each vacancy. According to recent research from jobs site Adzuna, the number of advertised job vacancies has dropped by 0.5%, totalling 857,000 roles available in August, a decrease from July. This trend suggests potential stagnation in the UK job market.
The decline in job listings coincides with a rise in redundancies and prolonged long-term sickness, further intensifying the competition for available roles. Adzuna’s data indicates that the average advertised salary has experienced a slight increase, now standing at £38,800, reflecting a 3% rise year-on-year. However, this wage growth is not keeping pace with inflation, resulting in pressure on real wages.
Another key indicator of a cautious hiring climate is the lengthening time it takes to fill job vacancies, which has now reached an average of 35 days. This suggests that employers may be adopting a more selective approach, slowing down recruitment processes while awaiting clearer economic signals. Andrew Hunter, co-founder of Adzuna, noted the decline in job vacancies from July to August, attributing it to rising redundancies, ongoing long-term sickness affecting the workforce, and a surge in jobseeker numbers. He pointed out that employers are focusing on specific roles and are hesitant to expand their hiring until there is optimism regarding economic improvement.
Despite these signs of stagnation, there are promising trends within the labour market. Hunter highlighted that graduate roles have seen consistent growth for four consecutive months, which could signal potential future increases in vacancies if this pattern continues.
Tony Wilson, director at the Institute for Employment Studies, commented on the findings with a hint of disappointment for those anticipating a stronger job market recovery over the summer. Nevertheless, he acknowledged that vacancies have stabilised around 850,000, with competition for roles returning to pre-pandemic levels. Wilson stated, “All of this should give the Bank of England more confidence regarding future interest rate cuts.”
In summary, the current landscape of the UK job market reflects a cautious and selective hiring environment, with employers delaying significant recruitment efforts until there is greater clarity on the economic outlook. For jobseekers and employers alike, staying informed about these trends is crucial for navigating the evolving employment landscape.
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 01763 261366 or email info@hflfinancial.com
The information available through HFL Advisory Services is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.
HFL Advisory Services is a trading name of IWP Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. FCA Reference 441359. Registered in the UK at Blythe Lea Barn, Mill Farm, Packington Park, Meriden, Coventry, West Midlands, CV7 7HE. Company Number 04138186.
Autumn Budget 2024: What to expect
“There is a budget coming in October and it’s going to be painful.” Prime Minister Keir Starmer has given his strongest hint yet of tax rises to come in the 2024 Autumn Budget.
In his first major speech from 10 Downing Street, the Prime Minister warned there would be tough choices ahead as the Labour government tries to plug a £22 billion “black hole” in public finances, saying “those with the broadest shoulders should bear the heaviest burden.”
All eyes will be on Chancellor Rachel Reeves when she delivers the Autumn Budget on Wednesday 30 October 2024. The statement will be accompanied by an economic forecast from the Office for Budget Responsibility.
What we know so far
The new government has publicly committed to “addressing unfairness” in the tax system and made a pre-election pledge not to increase VAT, Income tax or National Insurance.
The Treasury statement at the end of July confirmed some of Labour’s plans, including the abolition of the non-domicile tax regime, removing the tax advantages for landlords offering short-term holiday lets and introducing 20% VAT on private school fees across the UK from 2025.
While we can only speculate about further details of the forthcoming budget, it’s expected that tax increases will feature.
One option when it comes to personal taxation is to target wealth, in the form of investments, pensions and the generational transfer of assets.
Capital gains tax (CGT)
One of the main possibilities is a rise in CGT rates to align them more closely with income tax rates, especially for higher earners. Currently, tax on capital gains is levied at a lower rate than income tax. Equalising these rates may be a tempting revenue-raising measure. There are also discussions around reducing or removing existing exemptions and allowances, such as Business Asset Disposal Relief, which could impact business owners and entrepreneurs.
Inheritance tax (IHT)
The Chancellor has not ruled out a potential increase in rates of IHT and there are a number of ways in which changes could be introduced. There’s the possibility that the main 40% rate of IHT, which is imposed on properties above the tax-free threshold of £325,000, could be raised. The government could look at modifying some of the reliefs and exemptions such as those which apply to pension assets, agricultural land, charitable donations and qualifying investments. The current gifting regime, which allows IHT to be avoided completely if a gift is made more than seven years before someone’s death, may also be reviewed.
Pensions
It is widely anticipated that Labour will announce changes, with their manifesto promising they will “undertake a review of the pensions landscape”. Income tax relief on pension contributions could be reduced, and compulsory employer pension contributions increased. The ability to take a 25% tax free lump sum from a pension pot could also be reduced or removed, and it’s possible that the Lifetime Allowance, which caps the total amount that can be saved in a pension tax-free, could be reintroduced.
Planning ahead
With the Autumn Budget just around the corner, it might be tempting to try and pre-empt the announcement. While it’s important to be flexible and adaptable, we would advise against making major financial decisions based on speculation. If you have any questions about how tax changes might impact you, contact our experts on 01763 261366 or email info@hflfinancial.com.