Wealth managers react after UK Chancellor of the Exchequer Rachel Reeves released the UK’s Spring Statement this week. Controversial measures, such as her application of inheritance tax to family farms and businesses (above a certain threshold) haven't been eased. UK growth forecasts have been halved.

Any chance that UK Chancellor of the Exchequer Rachel Reeves might relent on taxing estates of farmers and family-owned businesses - both causing intense controversy - were dashed in the minister's Spring statement to parliament yesterday. Inheritance tax, which continues to bring in significant revenues - according to recent data - appears unlikely to go down.

And with growth faltering, and the government having to find money to fund urgently needed defence spending amidst rising geopolitical crises, the risks of further tax hikes in this parliament appear to be remain high. The Office for Budget Responsibility has halved its GDP growth forecast for 2025 to just one per cent.

Wealth managers' were not in a cheerful mood.

In the Autumn Budget, Reeves decided to abolish the resident non-domiciled status, replacing it with a new residency-based scheme; she also raised capital gains and employers' National Insurance contributions. Inheritance tax thresholds, which is charged at 40 per cent above a threshold of £325,000 ($422, 000), will stay frozen until 2030; inherited pensions will be brought into inheritance tax from 2027, however. Controversially, IHT now applies to estates of farms above £1 million, sparking protests across the country. The treatment of inherited pensions means that, when income tax is also deducted from the remaining pot, the effective tax rate on an inherited pension is 67 per cent, a lawyer explains. Agricultural and business property business relief will also be reformed with assets over £1 million facing a 20 per cent rate. A 50 per cent relief will be applied in all circumstances on inheritance tax for shares on the Alternative Investment Market (AIM).

Worried
“It is essential to remember that we have yet to see the legislation following the key announcements from the October Budget, such as changes to inheritance tax and business relief," Alice Harmer, personal wealth advisor at Schroders Personal Wealth, said in a note. "This is needed to give people greater clarity so that they can plan to pass on their wealth accordingly. What our clients are telling us is that they are worried, and some are starting to prepare by speaking to their advisors and reevaluating their financial plans." 

“Any slim hopes of a U-turn or softening to the Business Property Relief and Agricultural Property Relief Inheritance Tax changes or non-dom changes have been dashed. Clearly now is the time for those potentially impacted by these changes to act to help mitigate the fallout, and I will continue to advise clients on the rules that we have,” Hilesh Chavda, partner at law firm Spencer West, added.

“The OBR has also substantially upgraded its predictions for the revenue it believes inheritance tax will raise compared to the Autumn Statement when it introduced significant reforms to the regime," Simon Martin, head of UK technical services at Utmost Wealth Solutions, said. “It has added an estimated £0.5 billion ($0.64 billion) per year between 2025/26 and the end of the decade which it attributes to higher cash deposit and property valuations. Further analysis of the impact of the widening scope of the inheritance tax regime are undoubtedly also likely to be driving this uptick in receipts."

Growth has however been upgraded by the OBR from 2026 onwards, reaching 1.9 per cent in 2026, 1.8 per cent in 2027, 1.7 per cent in 2028 and 1.8 per cent in 2029. The OBR estimates that reforms in planning and a commitment to building new homes should structurally increase GDP growth. Unlike defence spending, the majority of this should directly impact the UK jobs market and UK businesses. 

Inflation was lower than expected this week at 2.8 per cent in February and the OBR forecasts to bring inflation back to the 2 per cent target by 2027. However, this year the forecast is 3.2 per cent. Shadow Chancellor Mel Stride for the Conservative Party said inflation is now twice what was expected under the Tories. “The country was also growing at the fastest rate in the G7 only about a year ago.”

Meanwhile, defence spending will be boosted by £2.2 billion ($2.8 billion) next year, reaching 2.5 per cent of GDP in 2027, which Stride welcomed. But he said it should be increased further. There will be £2 billion more investment spending. Germany and the EU have also just announced plans to hike defence spending as the US suspended military aid to Ukraine and turned up pressure on the Ukrainian government to reach a peace deal. This has given rise to a big shift in the investment landscape. 

There will be an additional £2 billion for affordable homes and £600 million to train construction workers. There was also an adjustment to welfare cuts to save an extra £4.8 billion and the government aims to help HMRC crack down on tax evasion through tech.

Here are some other reactions:

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“The big picture remains one where we’re overweight short-dated gilts as yields are still elevated. After all, the latest figures show that inflation is slowing more than expected, we believe the UK economy will not likely grow much more than 1 per cent this year. This is why we think the Bank of England has scope to cut rates, supporting bond prices. Tightening the purse string is supportive for this asset class too. Conversely, we’re underweight US Treasuries on fiscal concerns.

“In foreign exchange, we think sterling is unlikely to strengthen much further versus the dollar, given our view that the bank will lower interest rates, but it’s unlikely to gain as the US Federal Reserve too is likely to cut rates.

“Equity markets have been volatile so far this year, quickly rotating in reaction to a fast-changing narrative. We’ve recently adjusted our investment strategy to reflect this leadership change: we have increased our exposure to European equities including UK to a tactical overweight. 

“More attractive valuations and newly-announced government spending, including for defence and to raise the long-term growth potential, were the changes in fundamentals needed to increase our positioning. And, while US tariffs are a downside risk, should the Russia-Ukraine war end we’d see an upside risk for the European markets. More generally, we’re diversified across asset classes and regions, and maintain our exposure to inflation-protected bonds, gold and broad commodities to mitigate a range of risks.

“In portfolios where this is possible, we cushion bouts of market volatility with equity insurance instruments that appreciate when the market falls. This insurance instrument worked as expected in the US, allowing us to lock in some profits and partially offset the fall in US equities, and we still hold some protection there.”

Adebola Babatunde, financial planning director, Rathbones 
“The UK’s Spring Statement may have spared entrepreneurs from new financial pressures, but it fell short of reigniting confidence within the entrepreneurial community. With over 10,000 millionaires reportedly leaving the country last year, today’s Spring Statement could have been a pivotal moment to reverse the trend and cultivate a thriving ecosystem for innovation and growth.” 

Michael Sheehan, fixed income fund manager, EdenTree Investment Management
“As expected, lower growth forecasts and weaker finances continue to make the Chancellor’s job considerably harder. While gilts gave up some of their gains throughout the Chancellor’s speech, the market welcomed the Debt Management Office (DMO)’s bond sale forecast with open arms, with overall issuance likely lower than expected. With a lower-than-forecast inflation print this morning and a favourable debt issuance outlook we would expect a recovery in the underperformance seen thus far this year in gilts. It remains to be seen how sustainable the rally will be. With the Chancellor’s statement maintaining the status quo and the downgrade for this year’s growth forecast, UK finances are unlikely to see a material improvement, or to provide the gilt market with the assurance that it needs.”

Adam Craggs, partner at RPC 
“For wealthy individuals, the announcement that HMRC will overhaul its approach to offshore tax non-compliance is particularly noteworthy. The recruitment of private sector wealth management experts, combined with the deployment of artificial intelligence and advanced analytics to identify hidden wealth, signals a step change in HMRC’s capabilities. The tax authority already has extensive access to data and cutting-edge technology, which has driven a notable increase in time-consuming and costly investigations into the affairs of high net worth individuals in recent years. While the precise application of these new resources remains to be seen, it is clear that wealthy taxpayers will remain firmly in HMRC’s sights for the foreseeable future.

"The expansion of HMRC’s counter-fraud capabilities also marks a shift in tone. Measures include increased prosecutions for tax-related offences, a new reward scheme offering informants a percentage-based share of recovered tax, and a more aggressive stance on what HMRC considers the most egregious behaviour. These developments suggest a greater number of taxpayers could find themselves subject to HMRC’s criminal powers. 

“This year’s Spring Statement could fairly be described as all stick and no carrot. Taxpayers will gain further insight into the government’s cost-cutting agenda with the multi-year spending review expected in June. Looking ahead, many will be hoping that the government’s economic plan begins to bear fruit – giving the Chancellor the headroom needed to deliver meaningful support in the Autumn Budget."

Matt Phillips, director, wealth planning, Canaccord Wealth 
“While we weren’t expecting any major measures today, the Chancellor’s Spring Statement is another demonstration of the enormous challenge the government faces in tackling persistent, stagnant growth. It also demonstrates the UK’s sensitivity to the global uncertainty produced by the US President Donald Trump administration and the limiting impact of the government’s specific fiscal commitments.

“Today’s statement is a further demonstration of the UK’s vulnerability to market sentiment and the UK needs much greater fiscal innovation to drive growth. The UK requires a much more imaginative approach to public spending and economic governance if it is to achieve the kind of growth it desperately needs.  While we weren’t expecting clarity in today’s Spring Statement on proposed changes to inheritance tax (IHT) and pensions, it’s been five months since the Autumn Budget and we still don’t have certainty on the proposed measures. People are in limbo and we challenge the government to provide a concrete blueprint to end this persistent uncertainty."

Matthew Amis, investment director, at Aberdeen
“Aided by this morning’s better inflation data, the gilt market should be relatively happy this afternoon. OBR forecasts show GDP growth in the medium term slightly higher and inflation slightly lower. But more importantly the amount of gilts issued this year is well below market consensus. To add to the gilt positive tone the reduction in long maturity gilts has far exceeded market expectation. This should give the much-beleaguered gilt market the opportunity to perform in the short term. This should buy some breathing space before June’s spending review.”

Bill Casey, portfolio manager, equities, Schroders
"This Spring Statement is incredibly important for the trajectory of UK stocks, especially those that are domestically focused and mid-caps. Gilt yields, which form the basis of all interest rates, are trading almost 2 per cent higher than their equivalents in Germany. Higher inflation and limited fiscal headroom are part of the problem, along with a large fiscal deficit. The Autumn Budget attempted to address the deficit and drive mid-term growth, but higher taxes on business have sapped investment and hiring. 

"It all comes back to interest rates and growth, where lower rates are needed to reignite the investment cycle. Lower rates are also key to improving fiscal headroom, which has eroded since October. Options are now limited and having seen the impact that shrinking the state in the US is having on the cost of US debt, the UK is taking a leaf out of the DOGE book (the US Department of Government Efficiency). Lowering the cost of UK debt compared to countries like Germany will be key in enabling animal spirits both in the real economy and the stock market."

Shamil Gohil, fixed income portfolio manager at Fidelity International
“The Chancellor has replenished the fiscal headroom back to £9.9 billion (spending rule), which may provide some relief in the short term, but this is a temporary fix, kicking the can down the road. Longer term, budgetary challenges remain as higher interest rates and weaker growth persist.

“£10 billion headroom is arguably not enough headroom compared to a planned ~1.5 trillion of spending and uncertainties ahead. The historical average has been closer to £30 billion but recent governments have run it tighter. A £20 billion number would have been more constructive for gilts. Ultimately, the fiscal headroom is how the market quantifies and judges the Chancellor’s credibility. Gilts probably remain in no man’s land until the Autumn budget as we will be likely to see some fiscal slippage and buffer erosion from now until then.

Caroline Shaw, multi asset portfolio manager at Fidelity International
“Reeve's self-imposed, "non-negotiable" fiscal rules could be a millstone round the neck of economic growth. Sticking to manifesto promises has left the government hamstrung in its efforts to generate growth potential. UK equities need a real growth impetus, with the ability for credible fiscal spending to support growth, alongside lower interest rates and it is hard to be optimistic given the backdrop. 

“Defence spending increases were pre-announced, but despite government assurances that this needs to benefit UK jobs and UK businesses, this money is likely to be spent mostly in the US, where the market leaders are based. The clear growth narrative was supposed to be from the UK housing sector. Subsequent UK governments have tried and failed to deliver on planning and housing spending and it is too early to tell whether today's positive rhetoric will deliver. UK housing stocks responded with price declines. Within the UK, we think the outlook for gilts is more favourable than the outlook for equities. But inflation is the risk here as the Bank of England could remain in a difficult spot.”

Chris Riley, head of tax at audit and accountancy firm PKF Littlejohn
“As expected, the Chancellor’s speech did not contain many surprises on the tax front. She stayed true to her promise to keep the Autumn Budget as the main fiscal event, focusing on economic and spending updates, and taking broadsides at the opposition in time-tested fashion. Worth noting that HMRC has been given further spending to pursue tax investigations; also worth noting that there was plenty of discussion of boosting growth. But the big focuses were defence spending and public sector efficiency, both of which are set to feature heavily. With so many pressures on the economy, it will be interesting to see where we are in seven months’ time for the next budget – the signs are there for even further fiscal squeezing.”

Nick Henshaw, head of intermediaries at Wesleyan Assurance Society
 “It was reported that the Chancellor had been mulling cutting the cash ISA allowance in today’s Spring Statement. This could now happen in the Autumn Budget instead. The government is trying to build a culture of retail investing – something we welcome if it supports people’s long-term financial wellbeing. And it presents a real opportunity for intermediaries to once again underline the value of advice. If and when cash ISA reform comes, savers may start exploring alternative solutions for their money that still provide the same tax benefits. Advisors can support this switch, which could include helping savers consider a Stocks and Shares ISA with specialist smoothed funds within them. These funds are available on certain platforms, and can help ‘smooth’ out sharp peaks and troughs in the investing journey – something likely to appeal to new investors who might be nervous about day-to-day volatility.”