The new UK Government has now shown us its plans for the future.
There is no doubt we had to start the painful process of tightening our belts and, now we know how the Government plans to do this, individuals can finally start to plan their finances effectively.
Starting with the good news, the Government will review next year the compulsion to use a pension to buy an annuity or for individuals to go into an alternatively secured pension (ASP) at the age of 75, and it looks likely these edicts will be scrapped.
The new Government will hopefully also remove some of the ridiculous and bureaucratic legislation regarding pensions such as the lifetime allowance, which means that anyone with total pension funds exceeding £1.8million has to pay tax of 55% on the excess.
If ever there was a piece of legislation that stifled investment this is it.
There is much need for simplification to pension legislation and I would not be surprised if we returned to the old rules where there was greater restriction on the amount that could be contributed but no restriction on the fund size at retirement.
There is also a likelihood of higher rate tax relief being further reduced, or withdrawn altogether, and so I believe there is a limited opportunity for anyone who is currently a higher rate tax payer, but has not exceeded total earnings of £130,000 in the last three years, to make a sizeable contribution to their pension, which would attract 40% tax relief, as they may not be able to do so to the same extent in the future.
The news regarding capital gains tax (CGT) was not nearly as bad as had been suggested, and the fact that the annual exemption of £10,100 per person remains, and that the highest rate of CGT is now 28% means that using this allowance for long-term saving is still attractive.
It was interesting to hear the Chancellor say that increasing the highest rate above 28% would be counter-productive as doing so would actually result in less tax being received by the Treasury. If they extend this logic to income tax, I suspect we may well see the removal of the 50% tax rate in the next year or so.
ISAs remain untouched and, in the current high taxation environment, making full use of this valuable allowance makes even more sense, although probably via stocks and shares rather than cash. It has also been announced that the allowance will increase in line with the consumer price index in the future.
The bad news, however, is that, as well as each of us having less money in our pockets, and being forced to pay more for goods and services once VAT rises, the aggressive cutting in government spending means interest rates will have to remain at their current levels for some time to avoid the threat of recession.
Although this is good news for borrowers, it is not nearly so good for savers.
It is definitely a time for cash held on deposit to be kept to a minimum, as in real terms its value is being eroded on a daily basis, which will only get worse once the VAT rise comes along.
There are some positives for people to take out of the Budget and now the plans have been laid out we can all at least start planning effectively for better days ahead.
Article courtesy of The Press and Journal
Monday 12 July 2010
