Budget: a pleasant surprise, but not all it seems
After weeks of rumours that the Chancellor was about to give Pensions yet another kicking or introduce further unwelcome changes in what are already overcomplicated rules, Mr Osborne’s Budget speech was a pleasant surprise.
However, the uncertainty until a couple of days ago will no doubt lead to a sharp increase in complaints of mis-selling given that many investors removed funds in panic from their tax effective pension pots which were free of Inheritance Tax for the under 75s.
For the last twenty odd years the annual rumour that Tax Free Cash was to be abolished has done untold damage to generations of savers, and would- be savers put off investing in pension pots which are still by far the most effective way of building private invested wealth.
And that’s despite, in addition, the constant tinkering with lifetime allowances, as well as chopping and changing premium levels available for maximum tax reliefs. Where else can you have as a 40% tax payer, a mark- up in year one of almost 67%, put into an investment growing free of taxes on gains?
Maybe Mr Osborne is seeing the light. At least he showed a sense of humour which is a good start… when he said the previous Pensions minister, a Liberal Democrat, had predicted abolishing tax free cash, but he was keeping it and abolishing the Liberal Democrats instead. Then added, by midnight tonight. Pity he wasn’t abolishing the Inland Revenue.
Unsurprisingly he mentioned the new alternative of Lifetime ISAs for those in the 18 to 40 age group, but only from April next year.
Shades of the US equivalent 401Ks here. Save up to £4,000 pa, have 25% extra added by the Inland Revenue to age 50, and use the proceeds to buy a house or for retirement.
Remove money before age 60 and you lose the Government bonus plus other charges. Clever. But somebody should explain to George that all ISAs are not completely free of tax as he thinks. (Maybe he doesn’t have any, given his Pension isn’t limited like the rest of us ).
The widespread reductions for small businesses seem generous…lower stamp duty, lower Corporation Tax, lower rates, and if you have to cross the Severn Bridge, drive and own a pub you’ve cracked it.
As have serious savers, especially higher rate taxpayers. Capital Gains Tax rates for successful stockmarket investors in next tax year down from 28% to 20%, and down to only 10% for ordinary taxpayers. Lovely surprise there. Add to that an increased ISA Allowance from £15,000 per investor to £20,000, and suddenly life looks good for folks fed up with paying unnecessary tax on savings.
He didn’t remind us about the increased taxes on dividend income coming along for many of us after 5 April, but the lower Capital Gains Taxes added to the increased ISA allowances should encourage investors to switch income shares or trusts into ISAs or Pension funds exempt from the dividend changes.
Too good to be true? Let’s hope not. Gordon Brown’s budgets tended to sound good on the day with the hidden bad news revealed a couple of days later. So fingers crossed. But so far so good.
Alan Steel is an independent financial adviser