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Budget: Money Comment

Few changes, and that’s fair enough

Alan SteelWhat’s the world coming to ? The UK March Budget used to be fun. Umpteen controversial changes aimed at the investment and financial planning community.  

Boffins would pore over thousands of pages of small print playing Spot The Loopholes. Then esoteric products with high hidden charges would be flogged on a “hush hush, dinnae tell anybody” basis. And shut down the following Budget. Then the process would begin all over again. 

Ah, the good old days.  All the way from then, through the 1980s, right up to Gordon Brown’s highly complex efforts industry boffins pitted their wits against HMRC egg heads to see who would win the mind games. Alas, no more. 

Today, rumours of yet more changes to pensions laws proved unfounded thank goodness given the two hundred plus changes ( yes over 200 ) introduced since Brown’s so called Pensions Simplification, eleven years ago. 

There was simply an announcement that a 25% tax charge will be made from April on transfers of pension funds to what the industry calls QROPS ( don’t ask ) when a pension transfer goes outside Europe. Serves the owners right if you ask me. They should stay put in our crap weather and pay their taxes like the rest of us.

Mind you it may stop people from making bad investment decisions like investing QROP pension pots in Saudi Arabian car parks encouraged by high commission scammers well aware of our widespread financial ignorance.  And judging by the Treasury’s estimates of tax revenues to be gained by this move there’s a lot more mis-selling going on than meets the eye. Doh.

Other rumours of pension funds being forcibly plundered to pay for spiralling long term care costs (a “Death Tax”) were brushed aside by Hammond.  What I did like was that from now on, rogue tax avoidance schemes will see the designers and pushers fined/taxed as well as gullible investors. Long overdue. 

Don’t know if you noticed but the word “Fair” was mentioned during Hammond’s speech more than 12 times. I gave up counting. Possibly in shock when he said our Corporation tax rate will shortly be the lowest in the G20. Imagine that. And then he went off into a soliloquy about National Insurance Contributions and the Self Employed,  mixing in remarks about Dividends and Small Limited Companies.  Something wasn’t fair apparently, and should be.

His mate Osborne introduced last time around a “new” tax free dividend income level of £5,000 a year. I’d imagine that attracted quite a few folks to form small limited companies or buy shares. Well tough luck. The level’s been dropped to £2000. 

As to the self employed they’re about to have their NIC payments increased, apparently to bring them in line with employees. But as far as I can see it still makes sense to have your small limited company and pay mainly dividends, avoid NIC and be able to stick up to £40,000 away every year into a tax free roll up , no Capital Gains Tax or Inheritance Tax investment called a Pension Plan. Why send that offshore on foreign holidays and lose 25%? I don’t get it, either. 

Other exciting news is that from April you can stick up to £3,000 in a National Savings bond and be paid over 2% before tax.  Haud me back ! Or “young adults” who can drag themselves away from Facebook long enough to think and who can find the money can put up to £4,000 a year into a Lifetime ISA and have a 25% bonus added. The proceeds will be paid out tax free if they use them to buy a house , or after age 60 as retirement income. 

It will be interesting to see how many take up that opportunity. History isn’t a good guide unfortunately.  When announcing a £500m outlay to help 16 to 19 yr olds to learn about technology (apart from Facebook) so we can “give our children the same opportunities we had” and “real economic security in their later years”.  I take it he hasn’t noticed on average the vast majority of today’s  retirees, despite living through the richest 50 years in history, reach retirement with derisory saving levels ? 

Surely a far better idea would be to spend that money actually teaching teenagers on opportunity, investing, tax planning and debt ? Ah well. Maybe next year.

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.

www.alansteel.com

 

 

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