Another fine mess, Alistair?
I think most people will agree that ‘a fine mess’ is the only way to describe the fiscal muddle our dear Chancellor and the Government have got us into as a nation.
Not only have we been encouraged to borrow as much as possible to fuel high street spending but, even worse, the banking fraternity has at the same time also sanctioned the lending of larger and larger sums to allow us to venture into the world of property and buy-to-lets.
But, as with all good parties, an end is eventually reached and all that is then left is a mess that needs tidying up.
On the political scene, part of the recent tidying up process was the Chancellor’s Budget. By now you may already be familiar with the highlights and maybe even some of the detail.
But, have you managed to spot the odd ‘googly’ that, as with most Budgets, has been slipped in — unnoticed until the actual Finance Act goes through Parliament? What exactly was there in the Budget — for as well as against us? As in many other budgets the Government has blocked any avoidance measures for those earning above the £150,000 limit by stating that salary sacrifice and other forestalling measures will not work for such high earners.
Those in this position will therefore need to do some very serious income and investment planning because, not only is the income tax rate going up for them but dividends are also going up too.
Put simply, someone earning a salary of, say, £75,000 and then taking a dividend of another £100,000 will have the increase in dividend tax from 32.5% to 42.5% to cope with in addition to a reduction of their personal allowances as well.
Then, as if that were not enough, such earners will have the tax relief on any pension contributions reduced on a tapering basis.
But is there any good news? Well, the ISA allowance will go up from £7,200 to £10,000 per annum. Although this is definitely good news, for those high earners it will need to be one part of an overall restructuring.
The other piece of good news concerns the changes to the Enterprise Investment Scheme (EIS).
Under the old rules you could only carry back up to £50,000 of any contribution made up to October 5 in the preceding year. In the new regime you will be able to carry back the full £500,000 allowance.
It does however seem to me that one of the sectors that has been hit hardest is the self-employed business with profits over the new higher limit of £150,000 earnings per annum.
For those in this position an early visit to the accountant would seem to be the best option at this moment. Then there is the more mundane subject of trusts.
These are hit by the new rates of 50% on any income distributed and the 42.5% dividend rate. This will have a significant effect for trustees whose job is managing the investments within a trust.
The good news is that ways of legally avoiding these tax rises for trusts do exist, for those who bother to find out about them.
Finally, HMRC is going to introduce a third opportunity to disclose previously undisclosed assets held offshore. But before getting into a fluster on this one, I would wait for the exact details to be made clear.
Then an early visit to your accountant on this one would again sound like the best plan.
So will any of this assist in clearing up the mess? Your guess is as good as mine.
But do remember how previous Finance Acts have slipped additional measures in after the headlines have been forgotten. I will simply mention ‘the SIPP and the residential property debacle’ and say no more.
Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website www.realwealthmanagers.co.uk.