Changes to capital gains tax (CGT) rates and inheritance tax (IHT) reliefs risk stymying future investment and introducing unwanted confusion for financial planning, trade association PIMFA has warned.

In this week’s Budget, the Chancellor, Rachel Reeves, announced that the basic and higher rates of CGT would rise to 18 per cent and 24 per cent respectively, alongside reforms to Agricultural Property Relief and Business Property Relief.

Pensions were also brought into the scope of IHT, while the IHT relief on AIM shares was cut to 50 per cent, with an effective rate of 20 per cent.

PIMFA stated that the increased CGT rates were high amongst concerns, which could have a “detrimental impact” on consumer willingness to save and invest in the UK.

It added that this was particularly the case given that these increases were not accompanied by a change in the threshold, which has been eroded “substantially” over the past five years.

While PIMFA said it supported the government’s decision to freeze the IHT threshold until 2030, it noted that the “substantive” changes to IHT reliefs introduced complexity to the financial planning process, as well as the potential to diminish the value of previous estate planning, specifically related to pensions.

Acknowledging that “difficult decisions” had to be made, PIMFA urged the government to ensure these changes were not likely to be changed further over the course of this parliament.

It stated that while the changes were unwelcome, the government needed to ensure it now prioritises stability in the taxation framework and guard against making tweaks in the future in pursuit of making up fiscal shortfalls.

“Savers and investors will draw little consolation from the fact that measures announced in the Budget by the Chancellor could have been worse,” commented PIMFA head of public affairs, Simon Harrington.

“We accept that the Chancellor has sought not to place a burden on working people (however this government chooses to define them), but in targeting CGT in particular, this government risks stymying the very investment it seeks to stimulate economic growth.

“The government’s desire to utilise capital from pension funds to aid this has been much discussed, and we urge them not to needlessly erect further barriers for retail investors who can also play a crucial role in delivering growth.

“Whilst we welcome the government’s extension of the IHT threshold, the decision to change reliefs associated with it as well as the decision to bring pensions in scope will impact the effectiveness of people’s financial plans across the country and – in some cases, it may introduce doubts about the value of previous estate planning advice – specifically advice related to pensions.

“The value of financial advice is the certainty of outcome it can provide, and the confidence consumers can draw from that as a result. Constant tinkering with this regime diminishes the perceived value of holistic financial planning in particular.

“Going forward, the government should prioritise stability over future changes. We have been very clear that the government should adopt a taxation roadmap for personal taxation similar to the approach outlined for businesses in this Budget.

“Doing so would be enormously helpful and reassure savers and investors who need the confidence to know how their wealth will be treated both in accumulation and decumulation.”

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