High net worth (HNW) investors are increasingly reviewing how they structure, protect, and pass on wealth as uncertainty around potential tax reforms in the upcoming Budget grows, according to Rathbones.

The wealth management firm said discussions with clients were increasingly focusing on the impact of potential changes to capital gains tax (CGT) and inheritance tax (IHT).

Many clients were reassessing whether their existing financial plans remained fit for purpose.

Previous analysis from Rathbones found that aligning CGT and income tax rates could significantly increase tax liabilities for investors, with an additional rate taxpayer making a £50,000 gain outside of tax wrappers seeing their tax bill rise from £11,280 to £21,150.

It also found that removing the current CGT uplift on death could leave beneficiaries with a tax bill approaching £120,000 when selling an inherited property that had increased in value by £500,000 during the original owner’s lifetime.

"Uncertainty around fiscal policy does tend to prompt people to review their financial plans, but investors should be careful not to let tax considerations alone drive major financial decisions; as the saying goes, don't let the tax tail wag the investment dog,” said Rathbones senior investment director, Isabella Gallier-Pratt.

"We've seen clients move from asking 'what should I invest in?' to asking 'how exposed am I if taxes rise again?' That's a noticeable shift in mindset.

“More people are reviewing how they invest, how they structure their assets and how they'll pass wealth to future generations. Budget uncertainty is acting as a catalyst for those conversations."

Rathbones highlighted that, against this backdrop, offshore bonds were increasingly becoming a part of financial planning discussions, as they allow investments to grow without annual UK income tax or CGT being applied year by year.

The wealth manager argued that their appeal extended beyond tax changes, as they offered a combination of tax-deferred growth, greater control over when gains become taxable, and estate planning flexibility that can support long-term wealth preservation for those who had exhausted ISA and pension allowances.

"Once ISA and pension allowances have been fully used, investors naturally start asking what other options are available,” said Rathbones chartered financial planner, Matthew Smith.

“We're seeing offshore bonds come up much more often as part of our financial planning conversations with clients than they did a few years ago.

“For some investors, offshore bonds offer the ability to defer tax and have greater control over when gains become taxable which can support retirement planning, estate planning and intergenerational wealth transfer objectives.

"Importantly, offshore bonds aren't about avoiding tax. They are one option that can help build financial plans that can work effectively in a changing tax environment."

Galliers-Pratt added: “Investors shouldn't tear up long-term financial plans on the basis of Budget rumours.

“The best plans are designed to withstand changing governments, changing tax regimes and changing market conditions.”

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