The turn of the year is an ideal time to take stock and prepare your finances for the months ahead.
With upcoming UK and U.S. elections, slower growth and easing interest rates, 2024 will require high-net-worth individuals and their families to be nimble in their approach to their finances, as they look to navigate challenges and capitalise on opportunities.
Here are five key wealth-planning topics we expect to influence investors’ decision-making in the year to come.
Stimulating British businesses will be on the agenda for both the Conservative and Labour parties, should either hold power by the end of 2024. Measures announced in the 2023 UK Autumn Statement were testament to this: the Treasury confirmed an extension to the Enterprise Investment Scheme and Venture Capital Trusts, which received cross-party support. This provides investors who have the right risk profile a tax-efficient way to invest in early-stage British businesses.
“Both of these initiatives can play a significant role in retirement planning, because they offer compelling tax incentives to investors supporting smaller, unquoted UK companies,” says Nick Ritchie, senior director of Wealth Planning at RBC Wealth Management in the British Isles.
Making pre-emptive adjustments to an individual’s wealth arrangements before a general election can be a dangerous game – even more so when a ruling party is trying to gather votes pre-election and polls indicate a changing of the guard.
“The 2024 Spring Budget may be the Conservatives’ last fiscal event before the election, so expect the chancellor to have kept some powder dry for further tax tweaks,” says Ritchie. “In the same vein, a Labour government could be looking to put their own stamp on the country’s finances just a few months later.”
For individuals navigating the potential impact these changes could have on their financial plans, diversity of wealth-holding structures is important. A change in rules may favour one structure over another; so whether it be individual savings accounts (ISAs), pensions, international bonds or family corporate structures, a diverse allocation allows for an adaptable plan.
With the cap on social care costs being delayed until at least 2025 and personal expenditure rising, clients will be wary about gifting too much too soon. At the same time, without a drastic change to inheritance tax (IHT) thresholds, even those with modest estates are left exposed to significant IHT.
“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 of 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.”
Inflation may be easing, but costs remain stubbornly high and fiscal drag on earnings persists (when inflation and earnings growth push more people into higher tax brackets).
“We expect children of high-net-worth individuals to require more support and parents to oblige, with the continuing trend of smaller, more frequent and targeted gifts,” says Ritchie. “Be it helping with a grandchild’s school fees, funding the cost of home improvements or supporting with property purchases, the bank of mum and dad is likely to continue to be busy in 2024.”
As inflation trends downward and growth slows, a pause and eventual lowering of interest rates could be on the horizon in 2024. This may support risk assets such as equities and bonds, as lower rates encourage consumer and business spending and investment and boost asset prices.
Investors who have remained overweight cash should be wary of the reinvestment risk, as cash deposits roll off in a possible downward-rate environment.
Lower interest rates may also ease the burden on debt holders. “Those who do take on new debt may favour variable rates rather than fixing, while central banks try to control inflation,” suggests Day.
Those with surplus capital and a shorter time frame to invest may look to low-coupon bonds with shorter-dated maturities. These bonds return investors’ capital more quickly and enable them to take advantage of attractive yields-to-maturity – the percentage rate of return for a bond – on funds earmarked for medium-term spending.
“During times of economic strain, bondholders would do well to pay extra attention to the counterparty strength of the issuer – attractive yields may lure investors 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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