How working with a professional can help your clients prepare for the financial landscape of 2023

2022 will live long in memory from a personal finance point of view. With former chancellor Kwasi Kwarteng’s mini-Budget quickly unravelling, to new chancellor Jeremy Hunt introducing a whole host of new tax changes, it’s been almost impossible to keep up.

Meanwhile, the UK has been in the grips of a cost of living crisis, with surging price inflation and rising interest rates combining to put a real strain on individual budgets.

To compound matters, stock markets have been notably volatile, with many investors seeing fluctuations in the value of their holdings. Some individuals have even been forced to liquidate investments early to ensure that they’re able to afford their lifestyles in the short term as a result of the cost of living crisis.

With all this in mind, it’s highly important that your clients have access to financial advice right now, helping them to prepare for the financial landscape they’ll face in 2023.

Read on to find out why.

Chancellor Jeremy Hunt’s autumn statement has notably changed the financial landscape

On 17 November 2022, recently appointed chancellor Jeremy Hunt gave his first autumn statement. In it, Hunt announced a range of tax changes that will have significant consequences for your clients when they come into effect in April 2023.

One of the most important changes Hunt announced is the reduction of the threshold before high earners will pay additional-rate Income Tax.

The table below shows the Income Tax bands as of the current 2022/23 tax year, compared with the new bands that will come into place in April 2023.

As you can see, Hunt has now reduced the threshold for the additional-rate tax band, down to £125,140. So, when the new tax year starts on 6 April, anyone earning more than £125,140 will pay additional-rate tax.

For any clients you have whose income falls between £125,140 and £150,000, this could see them squeezed into paying 45% Income Tax for the first time.

When compounded with the loss of the Personal Allowance at this rate of earning (as the Personal Allowance reduces by £1 for every £2 of adjusted net income earned over £100,000), this change could indicate a significant increase in Income Tax clients may pay from April 2023 onwards.

In fact, The Telegraph reports that there will be a 60% effective rate of Income Tax on earnings between £100,000 and £125,140 after these changes come into force.

What’s more, clients earning at this rate should complete a self-assessment tax return, in order to benefit from additional-rate tax relief on pension contributions that fall within the Annual Allowance. Working with a planner can help clients make the most of this relief, especially if they are newly paying additional-rate tax.

Furthermore, the chancellor also confirmed that certain allowances for “unearned income” would be cut from April 2023. This will see the Capital Gains Tax (CGT) annual exempt amount and the Dividend Allowance be reduced.

Currently sitting at £12,300 in 2022/23, the CGT annual exempt amount allows you to liquidate gains in assets before tax is due. This exemption will reduce to £9,000 from April 2023.

Meanwhile, the Dividend Allowance – which allows you to take dividend income before Dividend Tax is due – will be reduced from £2,000 to £1,000 in the new tax year, too.

Stock markets have been incredibly volatile over the course of 2022

Alongside the government’s changes to the tax rules, stock markets around the world have been incredibly volatile. Factors such as the war in Ukraine and supply chain issues for businesses have contributed to great instability across the globe.

As figures from JP Morgan’s monthly market review show, all measured asset classes except for commodities experienced falls in value year to date as of October 2022.

Another issue investors have faced is needing to cash out of their investment position to ensure that they can deal with the cost of living crisis.

According to data published in Professional Adviser, nearly half (44%) of UK shareholders have cashed in on stocks and shares over concerns of not being able to meet their regular financial obligations.

More often than not, this involves abandoning the potential for long-term returns.

Your clients could benefit from speaking to a financial planner

So, how can a financial planner help your clients in the new year?

Firstly, an expert can help your clients to understand how they might be affected by the changes that will come into effect next year.

Even better, they can also show them how to strategically make the most of current allowances while they can. For example, they might suggest liquidating investments to make the most of the higher CGT exempt amount before it’s reduced, or drawing income from a business in dividends while the Dividend Allowance is still £2,000.

What’s more, a financial planner can help clients understand when they can retire. Surprisingly, some people don’t know how much wealth they have, and can work for too long at the expense of missing some treasured retirement years. Knowing how to strategically draw on the various assets they’ve built up can minimise an individual’s tax position and potentially find extra retirement income. If the questions on your clients’ lips are: “Do I have enough to retire on?” and “Will it ever run out?”, a WKM financial planner can hold both of these as central to each meeting.

Crucially, they can also help clients stay abreast of further changes in 2023 and beyond. If 2022 has taught us anything, it’s that tax rules can change quickly! Having substantial income feels secure, but your clients could be unknowingly pushed into a higher rate of tax while their CGT allowance goes unused, for example. A planner will be on top of revisions as they happen so that your clients are always up to date with the latest information.

Meanwhile, when it comes to volatile stock markets, a financial planner can bring peace of mind and help “steer the ship” in uncertain times.

No one knows exactly what will happen to stock markets over the course of 2023. But, while past performance may not ever indicate future performance, historic trends do show that a steady, long-term approach is often the most successful in achieving the returns investors need to achieve their goals.

This is exactly what Nutmeg found when examining past trends in stock performance. The investment platform conducted research which revealed that the probability of positive returns on any given stock in developed equity markets between 1971 and 2022 was 52.4% when held for 24 hours.

But holding that same investment for an entire year saw those odds increase to 72.8%. Furthermore, holding for 10 years increased the chances to 94.2%.

By working with a financial planner who understands the power of long-term investments and the importance of remaining invested, they can carefully guide your clients through periods of market volatility.

Get in touch

If you’d like to form a professional relationship with a financial planner so your clients have access to the advice they need, please do speak to us at WKM Wealth.

Email [email protected] or call 0116 403 0138 today to find out what we can do for you and your clients.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.