The WAY Group Newsletter for Financial Advisers | June 2010
The Emergency Budget 22nd June 2010
WAY's Technical Manager, Mark Benson TEP, gives his initial reaction to today's Coalition Emergency Budget...
Well, it worked on me anyway! I certainly feel better about the Emergency Budget today (now that I know what is in it) than yesterday (when I could only speculate). It seems we were being softened up for some punches that weren't landed in the end (?). However, we will all be feeling the bruises come the morning.
At WAY, all eyes are inevitably fixed on the announcements regarding capital taxes, in particular Capital Gains Tax (CGT) and Inheritance Tax (IHT). The news on IHT is quickly summarised - there's nothing new. However the Coalition has adopted the position left by the previous government and thus have confirmed that the nil rate band is frozen at £325,000 until 2014/15.
IHT therefore hasn't gone away, as many were hoping. It is time to revisit this with clients and to get started with any planning that had been deferred prior to the election.
You probably feel great that the rate of CGT has not increased to 50%? Indeed, that was the Chancellor's desired effect, but let's not forget that he has introduced a 10% hike to the rate for higher rate tax payers, and right in the middle of a tax year to boot. Despite the tax increase, there is a lot to be pleased about in the way that the increase has been structured:
- The flat-rate structure has been maintained. Whilst it does have its flaws in not distinguishing between short and long-term investing, we are better off overall from not
having to deal with taper relief or indexation. - Basic rate tax payers still benefit from a rate of 18%.
- The CGT rate has been linked to an individual's Income Tax position once again by adding the net gains (after losses and annual exempt amount) to the total income for the year. Any amount under the higher rate tax threshold will be taxed at 18%.
- Any amount over the higher rate threshold will be taxed at 28%.
- Unsurprisingly the rate for all trustees is 28% - regardless of the size of the trust.
- The Annual Exempt Amount (AEA) is maintained at £10,100 for individuals and will increase in line with RPI in the future. This is very good news as prevents thousands of small disposals being caught in the CGT net. I'm sure that HMRC were very vocal on this, citing the prospect of a blizzard of extra self assessment returns (bringing with them hardly any tax take) arriving into newly cash-strapped government offices.
- There do not appear to be any proposals to change the rules on Hold Over Relief, although there is no draft legislation available as yet for the CGT changes (how many hours before the Chancellor stood up at the despatch box was this policy decided I wonder?). This would suggest that this relief may be even more valuable in future, as trustees and beneficiaries can hold over gains upon appointment of assets from trusts, giving the potential to benefit from a beneficiary's 18% CGT rate as well as their higher AEA.
The key question of course is whether these changes will actually raise any money? The Government say it is worth £1bn, although I see that already the Adam Smith Institute is suggesting that the effect of investors sitting on their assets will lose the Treasury £800m in tax. We shall see, but this increase is undeniably driven more by politics than economics.
The most positive thing that you can say about this Budget is that it sets out the stall of the Coalition for the next five years and thus puts us all on firm ground when planning for clients.
Yours sincerely,
Mark Benson TEP CertPFS
Technical Manager, WAY Investment Services Limited
22nd June 2010.
Reference:
HM Treasury: Preliminary Budget Report, Data & Statistics - 22nd June 2010
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How to contact us
We hope you found this article informative and that some of the issues raised will prove useful for developing business with your clients? If you wish to discuss any matters arising from this article or, indeed, want to talk to us about any of WAY's products, then you are most welcome to call either Tony Lyons, IFA Support Manager, or Mark Benson TEP, Technical Manager , on head office telephone number: 01202 890895. Or, if you prefer, you can use the website: Contact Form to get in touch. We look forward to hearing from you.
The WAY Group Newsletter for Financial Advisers | June 2010
Please Note:
This document has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This document does not constitute investment advice or a recommendation to purchase or sell any security. The investments and services referred to in this document may not be suitable for every investor and if in doubt independent financial advice should be sought. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this document. No liability is accepted whatsoever for any loss howsoever arising from any information in this document subject to the rules of the Financial Services Authority or the Financial Services and Markets Act 2000. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. Share prices, values and income can go down as well as up and investors may get back less than their initial investment. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.