As we step into 2025, the financial landscape in the UK is expected to undergo significant shifts due to changing economic conditions, regulatory updates, and evolving consumer needs. For individuals, the importance of proactive financial planning and adapting to new legislation will be key to securing long-term financial health.
Economic context and legislation changes
The UK’s post-Brexit economic recovery, ongoing inflationary pressures, and shifting global trade dynamics will likely continue to influence financial markets in 2025. With inflation possibly stabilising but remaining a concern, savers and investors will need to consider how rising costs affect their purchasing power and long-term investments.
A critical change is the potential reform of UK pension systems, where there is an industry-wide consultation underway as a first response to the proposed changes in the recent Budget. It may be that pension plans form part of an individual’s estate from April 2027 and there is also the potential for the double taxation of pension benefits on death. We will, of course, be monitoring this area particularly closely.
There are also changes to the Agricultural and Business Relief rules coming into effect in April 2025 and any affected individuals should be seeking advice with some urgency.
Donald Trump v2
A second Donald Trump administration may reshape global economics and geopolitics, building on his first term’s “America First” policies. Economically, Trump may continue his protectionist stance, imposing tariffs on foreign goods to shield American industries, which could lead to trade tensions with key allies and adversaries. These policies could disrupt global supply chains and hurt international markets, especially in Asia and Europe, as companies and nations adjust to new trade barriers.
However, average consensus amongst investment and economic professionals is for an additional 10.6%1 rise in the S&P500 (after a 26% rise in 2024) and a strongly rising American market should have positive effects on other global equity markets.
(1 www.afr.com; Emma Rappaport 9 January 2025)
Personal action steps
For individual clients, staying ahead of these changes will require a more active approach to financial planning. Here are some key areas to focus on in 2025.
1. Maximising tax efficiency: Understanding changes to tax allowances, pension contribution limits, and the potential impact of tax reform will be vital. Clients should work closely with their financial advisers to optimise tax-efficient investments, ISAs, and pensions.
2. Investment diversification: With market volatility potentially continuing, diversifying investment portfolios across different asset classes, including equities, bonds, and alternative investments, will help mitigate risk.
3. Retirement planning: Early planning will be critical, especially given potential pension reforms. Clients should review their retirement plans, considering increasing contributions but be mindful of the various limitations in regard to tax-free cash and lifetime allowances.
4. Estate planning: With the likely changes in inheritance tax legislation, reviewing Wills, Trusts, and gifting strategies will help individuals optimise wealth transfer strategies. Insuring liabilities is also a useful short to medium term solution.
In conclusion, 2025 will be a year of change and opportunity in the UK financial landscape and staying informed and adaptable will be essential for clients to secure financial stability in the years ahead.
