Spring is in the air (allegedly)
I assume that Scotland operates under a different calendar to the rest of the northern hemisphere. It is supposed to be springtime and although the clocks have gone forward anyone stepping outside will be rapidly aware that this is definitely not British Summer Time!
The good news is that it means we have no distractions preventing us from giving ourselves a financial spring clean and to be honest there has never been a more important time to do this as we have the recent Budget announcements as well as an upcoming General Election to consider. Just as a gardener will protect the young shoots from frost now is the ideal time to put a "cloche around your dosh" and protect it from the icy fingers of a post-election Budget.
Of all the elections I have experienced this one seems to be the most difficult to call. Will the UKIP vote hold up or was it simply a protest vote in the Euro elections? Will "oor Eck" hold the balance of power in Westminster? One thing that does seem likely however is that no one party will be able to achieve an overall majority, and if so what are the consequences for savers and investors?
Although political parties tend to avoid going into the nitty gritty about how they will raise tax revenues other than headline grabbing statements such as a "Mansion Tax" for example, you can be certain they will all have plans up their sleeve to extract more money from our pockets than they are getting already, so how do we best prepare for this happening? There are three main areas that I feel you should focus on.
For starters irrespective of the type of Government we see after the election, only a fool would expect to see taxes for the higher earners fall. If we did see a left wing Government it is a certainty that the highest rate of tax will go back to 50% and maybe more for the highest earners. Business owners with the cash should consider taking dividends from their companies in the current tax year as it may be some time before we see the highest rates of tax return to their current levels.
Both Labour and the Lib Dems have in the past stated they would bring in a cap on the amount that can be invested in total into an ISA, and those that may be affected by something such as this happening would be wise to put their ISAs for the new tax year in place before the election in case this comes to pass.
Secondly the new tax relief on interest earned (starting 2016/17) which will allow the first £1,000 of interest for a basic rate tax payer and £500 for a higher rate payer means that in effect for the vast bulk of the population using their ISA allowance to invest into a cash ISA is pointless.
In the Budget the Chancellor announced a further cut in the pension Lifetime Allowance to £1m from tax year 2016/17. Although the timing of this was probably political it showed that all parties now see pensions as a way of raising revenue, and without question a nice little earner for the next Government would be the abolition of higher rate tax relief on pension contributions.
Some of you will remember the time when you received tax relief on your mortgage interest. This was introduced believe it or not to try and stimulate home ownership back in 1969. Mission achieved the allowance was frozen and the amount of tax relievable reduced for years until it was eventually abolished in 2000 and saved the country £2.7bn a year.
In comparison the cost of higher rate relief on pension contributions is £7bn per annum so in effect it is pretty low hanging fruit for the next Government to pick, and I think it is an absolute certainty this will either be removed altogether or limited in some form. So once again if you are a higher rate tax payer and have the wherewithal and scope to do so, making a contribution before May 7th seems to be a plan.
For those who make pension contributions from their businesses, although it hasn't been mentioned much, the fact that employer pension contributions are free from National Insurance costs £13bn in lost revenue so I would not be surprised if this was attacked post-election too!
Well that's your finances tidied up. In a couple of months' time you might be able to do the same in the garden!