High net worth individuals (HNWI) are taking tax-free lump sums from their pensions and changing investment strategies in anticipation of tax changes in the Budget later this month, research commissioned by Wealth Club has found.

It revealed that 37 per cent of wealthy clients had either taken some of their pension as a tax-free lump sum or were considering doing so, in response to rumours that the allowance could be reduced in the Budget.

Furthermore, HNWIs were looking at changing their investment strategies to take advantage of existing tax reliefs.

More than half (56 per cent) said they were maximising tax-free income and growth from ISAs ahead of the Budget.

Over a third (36 per cent) were making use of the income tax relief and tax-free dividends of venture capital trusts (VCT), while 20 per cent were taking advantage of pensions tax relief.

A quarter (25 per cent) of respondents said they were considering selling some of their most profitable investments to avoid potentially having to pay more capital gains tax after the Budget.

“With rumours swirling around about what the government might do in the Budget, high net worth investors are moving fast to get their affairs in order,” said Wealth Club founder and chief executive, Alex Davies.

“We’re seeing people withdraw the tax-free cash from their pensions and putting more into tax-efficient vehicles such as ISAs and VCTs just in case any of the rules change.

“Using your ISA and VCT allowances ahead of time makes sense in the unlikely event of changes. But taking cash out of your pension is a much bigger and riskier decision.

“This just shows how damaging the constant threat of government tinkering can be to people’s long-term wealth. We urge the Chancellor to leave pensions alone. Otherwise, those who’ve worked hard and saved all their lives may well end up poorer – and those still saving will lose trust in the system.”

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