The UK is expected to endure a prolonged economic downturn as we head into 2023. For high-net-worth individuals (HNWIs) and their families, this means there are going to be new challenges and opportunities that influence their financial decisions. Here are the five key wealth planning topics we expect to see more of in year ahead.
1. More strain on the bank of mum and dad
With rising costs, higher interest rates and greater fiscal drag on earnings, we expect children of HNWIs to require more support and parents to oblige with smaller, more frequent and targeted gifts," says Nick Ritchie, senior director of wealth planning at RBC Wealth Management in the British Isles. “Be it helping with a grandchild's school fees, funding the cost of home improvements or even supporting with the spiraling cost of heating one's home, the bank of mum and dad is likely to be busier in 2023."
2. The return of active management and alternative investment strategies
The challenging backdrop for managing client portfolios presents an opportunity for active managers able to seek out more esoteric opportunities that take advantage of turbulent market conditions. “Alternative strategies such as structured products with some form of capital protection may tempt investors who seek upside on cash without full market risk," Ritchie explains.
3. How to manage inheritance tax without giving it all away
With social care cost cap provisions being delayed further and personal expenditure rising, clients will be wary about gifting too much too soon. At the same time, a freeze in inheritance tax (IHT) thresholds leaves those with even modest estates, exposed to significant death duties.
“Parents trying to walk the tightrope of gifting to reduce IHT exposure, without sacrificing their own standard of living, might look to strategies that achieve this without giving it all away," says Lucy Day, associate director, Relationship Management for RBC Wealth Management in the British Isles. “We expect insuring the liability and investing in assets that are exempt from IHT to be popular in the coming years."
4. Preparing finances for a higher tax regime
The Autumn Statement revealed the latest incarnation of the Conservative party is keen to raise revenues by capturing “more from those who have more." And with an election inevitable by 2024, the prospect of the Labour alternative will lead many to consider how best they're protecting their wealth from the higher tax regime.
“Aside from leaving the UK altogether, using tried and tested allowances from Individual Savings Accounts to pensions to investment bonds and looking at tax reducers such as Enterprise Investment Scheme and Venture Capital Trust investments will gain increasing attention from those who remain," says Ritchie.
5. The new interest rate environment
Leveraging to invest will be out of the window for all but the most bullish investors. “Those that do take on new debt may favour variable rates rather than fixing while central banks remain so determined to snuff out inflation with further rate rises," Day says.
Those with surplus capital and a shorter timeframe to invest will be relieved they can take advantage of attractive yields on cash to enhance the return on funds earmarked for future spending. “During times of economic strain, deposit holders would do well to pay extra care to the counterparty strength of their deposit taker – attractive rates may lure deposit takers in but let's not forget return of capital is more important than return on capital," says Ritchie.
As we move into a new year and trends come and go, remember to review your wealth plans on a regular basis in case your circumstances, goals or, indeed, regulations or broader global economic factors change.
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