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Chancellor may impose takeaway Budget

Were the giveaways too good to be true?

In recent years the Autumn Statement has taken on greater importance than the March budget, and yesterday was no exception.

It is typical for governments to try and bribe, sorry, I should say entice voters by giving them a bit more in their pockets before they cast their votes and yesterday was no exception.

The big surprise was the immediate altering of Stamp Duty rates to a tiered system rather than the band system that was in place until yesterday.  This copies the new Scottish system that will come into being from April, but it is there that the similarity ends.

The new UK system means that anyone buying a house for less than £935,000 will pay less stamp duty today than they would have yesterday.  However, this change means that when the new system comes into being in Scotland next year anyone paying more than £254,000 will be worse off under the new Scottish system compared to the rest of the UK.  No doubt this announcement will bring an even greater rush to buy homes before April north of the border.

The change to the treatment of ISAs on death between husband and wife is welcome as a number of people use ISAs to provide a tax efficient income and they will be able to continue to do this even after the death of their spouse.  Of course the ISA funds will still potentially be liable to IHT so depending on the value of the rest of their estate HMRC may still get 40% of their value at a later date.

This brings me on to the biggest change and the one that was previously announced, namely the taxation of pension funds on death.  From next April irrespective of whether a pension fund is in drawdown or not in the event of the pensioners death before age 75 the fund will pass free of tax to the named beneficiaries.

In the event of death after 75 the fund passes to the named beneficiaries as a pension fund which will only be subject to income tax at their variable rate when and if they draw from it.  If the fund has not been exhausted by the time of the beneficiaries death it will pass down to whomever they have nominated to benefit and so on.

This means that in effect the pension fund could pass down generations almost like a trust fund, and tax would only be due when income was taken from it.  Although we await the fine print it appears that if the beneficiaries are minors, the fund could still be used for their benefit (school fees?) and as they would have no other income it means that the first £10,600 taken each year would be tax free.

Too good to be true?  It appears so, particularly given the parlous state of the country’s finances, so I suspect that the budget immediately following the election may well taketh away what George Osborne giveth today.

Steven Forbes is Managing Director of Alan Steel Asset Management

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