Balance Briefing: February 2025
Pension changes, wealth protection & market shifts
In this issue, we’re tackling wealth protection and navigating market shifts in 2025—offering key insights to help you stay ahead.
Our latest update
The pension tax trap: What you need to know now
From 6 April 2027, pensions will count as part of a deceased person’s estate for inheritance tax (IHT).
Before - Pensions passed tax-free.
After - Beneficiaries could face a 40% inheritance tax bill.
For families with significant pension wealth, this is one of the biggest tax shifts in decades.
Example: A £1.2 million pension—How to potentially save £96,000+ in Tax
Let’s say John is 80 years old, married to a spouse who is also 80 and has two adult children. John has £1.2 million in his personal pension. If he were to nominate 80% to his spouse and 10% to each adult child now (£240,000), his family could save a minimum of £96,000 in inheritance tax if John were to pass away before 2027 when the changes come into place.
Possibly more, because the trustees could consider paying a higher percentage to the children, so long as the spouse has enough for their needs, saving even more tax for the children should the spouse live past April 2027.
It’s important to ensure the surviving spouse has enough to live comfortably, but diverting excess funds to their children pre-2027 could result in substantial tax savings.
The nomination can be reverted to his spouse after 2027 if John survives.
What you can do:
✔ Review your pension nominations now—delaying could mean unnecessary tax.
✔ Use cash-flow modelling to balance tax efficiency with long-term security for a surviving spouse.
With HMRC collecting £6.3 billion in IHT last year alone (an 11% year-on-year increase), strategic planning is no longer optional—it’s essential.
Market update: A wild start to 2025
US Markets: The Trump effect & AI disruption
The S&P 500 rose 2.8% in January, driven by optimism around President Trump’s return and promises of deregulation.
But the tech sector suffered a major blow.
Biggest AI shock in history? A Chinese AI company, DeepSeek, is challenging US dominance. This triggered a massive sell-off in Nvidia stock, wiping a staggering $600 billion from the market—the largest one-day loss ever.
This signals two things:
• AI is no longer just a US-dominated sector.
• Market leadership is shifting faster than ever.
UK & European markets: Stability & strong returns
• The FTSE All-Share Index returned 5.5% in January.
• The Europe ex-UK Index outperformed with a 7.1% gain, thanks to strong financials and consumer discretionary stocks.
Investment Strategy: What we can learn from history
Source: Investment market patchwork quilt - 2013 to Jan 2025
Every year, the best-performing asset class changes completely.
• 2013 - Small cap led.
• 2017 - Emerging markets.
• 2020 - Growth stocks.
And in 2025 - The early signs suggest sector rotation—value stocks have outperformed growth stocks 4.5% vs. 2.6%, but who knows where the year will finish.
Key takeaway: Markets are unpredictable. Portfolios shouldn’t be. If your investment strategy isn’t optimised to adapt to shifts like these, you could be missing key opportunities—or taking unnecessary risks.
Looking ahead: What should you focus on in 2025
• Pension tax planning: If you do nothing, your pension could become a tax liability instead of a family asset.
• Sector rotation: The shift from growth to value stocks may continue—portfolio diversification is key.
• AI & Market disruption: Expect volatility, but also opportunity, in tech and AI investments.
Final thought: Don’t just accumulate assets—actively defend them against tax, market shifts, and unnecessary risk.
We would love to hear from you
What’s on your mind? Let us know what financial topics you'd like us to cover in our next roundtable discussion! Simply email investments@balancewealth.uk to send your topic to our investment committee.
Please note: This update is not financial advice and is provided for information only. You should not take any action before speaking to a Financial Planner, who will confirm what suits you. Past performance is no guarantee of what will happen in the future.