I wonder how many times David Cameron had to pinch himself on the Friday after the Election? My guess is by the Saturday his body will have been covered in tiny bruises. No doubt "oor" Nicola will have had to give herself a wee tweak or two as well, although in her case the elation will have been tempered by the fact that the "lion's roar" as Eck called it will in effect have as much power as a cat's meow.
What this result means is, unexpectedly, we have a scenario where we should have some certainty as to what to expect over the next five years from a financial point of view as there will be no coalition partner demanding changes to the Tory manifesto in exchange for their support. Whether this is a good or bad thing we will find out in due course.
There will be a budget on 8th July and if previous post-election budgets are any guideline this is unlikely to contain any giveaways. Instead any increases in taxation are likely to be announced in the hope that in five years' time we will have forgotten about them. So what could we see?
Capital Gains Tax
Looking at the election pledges made by the Tories, Capital Gains Tax (CGT) was not mentioned when they promised to hold certain taxes at their current levels. As a result we may well see an increase in the CGT rates of 18% for a basic rate payer and 28% for a higher rate payer. It has been suggested that these may increase to the same rate as income tax, i.e. 20% and 40% respectively but this is a guess at this stage.
It may be that they will bring in a tiered tax rate based on the length of time an asset has been held to reward long term investors as opposed to speculators but once more this is a guess. I do however feel that there is one change they could make that would not only surprise the pundits but also raise a significant amount to government coffers and that would be to alter the exemption from Capital Gains Tax on your main residence.
Much was made of the "mansion tax" proposed by both Labour and the Liberal Democrats and how unfair this would be on people who happened to live in an expensive house and may have done for many years, but may not have sufficient income or liquid assets to pay the proposed tax. However, there is no doubt that in parts of the country owning a property will have been the best investment people have made and I do feel it is anomalous that just because you live in this asset any gains made should be completely free of tax.
As in most other countries, if the Government allowed a certain amount of gain to be tax free for example or made an allowance for how long you lived in the property would that be unfair? I don't think so.
I would like to think that there will be no more changes to pension legislation during this parliament with the exception of removing the Lifetime Allowance which is reducing to £1m from next April. The fact that by the end of this tax year there will be nine different forms of pension protection available when it was only in 2006 that pensions were allegedly simplified is nonsense.
Given the restricted amount that can be contributed to a pension these days, no more than £40,000 per annum, there is no need to have a Lifetime Allowance which was introduced when the maximum payable in a year was £215,000. If the chancellor restricts, or removes higher rate tax relief on pension contributions as is likely, the argument for keeping the Lifetime Allowance becomes even weaker.
Of course all will be revealed in six weeks by which time the post-election euphoria will have started to wear off and the reality of trying to govern with a majority of ten will kick in. No doubt Mr Cameron will suffer more bruising in the coming five years, but this time it will be political rather than self-inflicted.
Alan Steel Asset Management Ltd is authorised and regulated by the Financial Conduct Authority
The Financial Conduct Authority does not regulate tax advice
This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.