Monthly Archives: March 2010

Lucy Warwick-Ching

The end of the tax year is almost upon us which means the deadline for investing in an equity Isa for 2009/2010 is also close. But before you invest your allowance, here are a few key questions you should ask yourself*:

Alice Ross

The Financial Services Authority said today that commission on financial advice will be banned – again. It has been saying this for quite some time and set out proposals telling everyone what it was going to do last summer so I’m not sure why people seem so surprised.

Ok – so it’s a confirmation of the proposals. And it’s a good thing that commission is getting scrapped – in principle. But read a little behind the lines and I’m not sure how much effect this will all really have.

Jonathan Eley

Who’s the biggest banker basher? It’s a dead heat. Thump! David Cameron says banks will be forced to repay the billions injected by the taxpayer via a compulsory levy. Biff! Alistair Darling will force banks to provide financial services to the unbanked. Wallop! Everybody will crack down on ‘excessive bonuses’.There will only be one loser in all of this. According to a press release from earlier this week, politicians’ reforming zeal is hastening the end of free banking.

Well, pardon me, but I don’t think that would be such a bad thing. Let’s be honest, there is no such thing as ‘free banking’ anyway. Banking services are provided free of charge to the majority of customers, and the cost of that provision is met by charging outrageous fees to a minority. So far as I can remember, this is not how the rest of the world operates. When I lived in the US (in the early 1990s), I was charged 25 cents for every cheque (sorry, check) I wrote. In Hong Kong some years later, I paid a monthly fee to run a bank account. And I’d lived in Germany for nearly a year before I was even deemed worthy of Teutonic banking services.

Matthew Vincent

A reduction in capital gains tax (CGT)! Who’d have thought it?

By announcing an extension of the CGT entrepreneur relief, from £1m to £2m, the chancellor has not just cut the tax bills of business owners looking to sell up and retire – he has also allowed investors with a stake of 5 per cent of more in a company to enjoy a lower rate on their profits.

Damien Crossley, corporate tax partner at Macfarlanes, the City law firm said:

“The extension of entrepreneur relief from £1m to £2m is good news for owner managers of businesses who will now pay the lower 10 per cent capital gains tax rate on up to £2m of gains over their lifetime.”

Frank Nash, Blick Rothenberg, saw it as compensation for losing so much pension tax relief:

“The doubling of the capital gains tax entrepreneurs’ relief limit to £2 million will be a welcome move for retiring business owners particularly as the Chancellor has hit their pension funds so harshly with recent tax changes.”

But don’t be fooled. Capital gains tax will inevitably be raised for everyone before long – probably after the election. In an ironic inversion of New Labour’s 1997 election slogan, Louise Somerset of RBC Wealth management warned:

Wealthy taxpayers are unlikely to look at this Budget as being as bad as it gets, and I expect clients wanting to… lock in current tax rates before things possibly get worse.”

She, and others, point out that the difference between income tax rates of up to 50 per cent and CGT at 18 per cent is now so significant that many people will be putting a great deal of energy into ensuring they realise capital gains rather than income. No government is likely to allow that to happen for too long.

Steve Folkard, AXA Life’s head of pensions and savings policy, said: “It surely hasn’t escaped the chancellor that this is a massive difference, but closing the gap will not be a quick measure as it would be entirely unfair to make a change effective prior to the next tax year.”

A new chancellor may be less concerned about fairness.

Alice Ross

The chancellor said nothing new about pensions today. But he did confirm that the fiendishly complex rules on pension savings introduced in last year’s Budget and December’s pre-Budget report are here to stay.

Not only does this ignore the advice of most of the pensions industry, who’ve been submitting pretty annoyed responses to the ideas over the past month or so. It also flies in the face of pensions simplification, which was introduced in 2006 and was supposed to make saving into a pension easier for most of us.

There are now a mindboggling number of rules on whether you can get pension tax relief.

Ellen Kelleher

This will “hit the rich quite hard” is how Andrew Tailby-Faulkes, partner with Ernst & Young, put it when he called to offer his thoughts on Mr Darling’s address.

But those who are not wealthy also have cause for concern. The combined effects of the government’s move to encourage home ownership and keep the inheritance tax threshold at £325,000 for a further four years means that more of us are likely to draw inheritance tax charges.

As John Richardson, head of Advice Policy at Towry Law explains:

“Freezing the inheritance tax threshold for 4 years will mean more families will be caught by this tax and will therefore need to consider estate planning opportunities by maximising reliefs and exemptions.

“Trustees of discretionary trusts will need to consider more tax efficient investment structures to minimise 10 year anniversary charges,” he adds.

Taulby-Faulkes had predicted that Mr Darling might introduce a higher IHT rate for large estates. But this prophecy has not come to pass.

The rules are the same. After the first £325,000 “nil-rate” band is reached, the remainder of an estate is taxed at 40 per cent. Married couples and civil partners are able to use any unused portion of their partners’ nil-rate band upon their death.

Tanya Powley

So the Budget has brought a smile to the faces of first-time buyers across the UK with the news that from tomorrow, there will be no stamp duty for purchases of property up to £250,000 for the next two years.

But while Chancellor Alistair Darling was a bearer of good news to one part of the market, he also brought bad news to wealthy property buyers by announcing a new stamp duty band of 5 per cent for property costing £1m and over.

This change doesn’t start immediately – it comes into effect from 6 April 2011. No doubt the market will see a rush of property purchases before the higher stamp duty band comes into effect – part of the Government’s plan we assume.

The property and mortgage industry has welcomed the first-time buyer stamp duty relief after months of calling for an extension of the stamp duty holiday for property purchases between the value of £125,000 and £175,000 which came to an end last December.

According to figures from the Land Registry, about 78 per cent of property transactions in England and Wales would fall below a £250,000 stamp duty threshold. This of course varies significantly across the country from 93 per cent in the north-east of England to 48 per cent in London and 68 per cent in the south-east.

Figures from the Council of Mortgage Lenders show that about 91 per cent of first-time buyers bought property worth less than £250,000 in 2009 and that these buyers accounted for about 35 per cent of the total market.

However, many in the industry believe the government should have reformed the stamp duty structure rather than just introduce a new higher stamp duty band.

Melanie Bien of Savills Private Finance says:

Raising the top rate to 5 per cent over £1 million to fund this tax break simply underlines just how unfair the stamp duty system is because it is not tiered. A root and branch reform to make it fairer remains long overdue. It is at the top end of the market where the majority of transactions have been taking place, supporting the housing market. This may make homeowners think twice before moving.

What’s your view on the changes to stamp duty?

Lucy Warwick-Ching

It’s Budget week and all eyes are on chancellor Alistair Darling, who needs to pull a metaphorical rabbit out of his red case.

While my email inbox is stuffed full of releases outlining potential measures that may or may not appear in the statement, this morning I received something a little more interesting from Dr Stephen Barber, a leading economist, who advises Selftrade. He says:

With the prime minister poised to go to the Palace, there hasn’t been a Budget quite as politically sensitive as this one for eighteen years. Then it was the ill fated Norman Lamont whose politically clever but economically irresponsible Budget helped John Major’s conservatives win the 1992 general election against the odds. We have to go back to more than 20 more years to find similar circumstances ahead of an election. Here, the great Roy Jenkins, then a Labour chancellor taking over from Callaghan following devaluation, delivered a Budget which was the height of economic responsibility. But his party lost office unexpectedly in the 1970 election. 

Jonathan Eley

“The grannies lose their blouses…it’s the American investors we have to worry about.” This remark was widely attributed to Shriti Vadera, a Treasury adviser, as the government prepared to push Railtrack into railway administration in 2001. The disparaging reference to private shareholders as “grannies” whose interests could safely be ignored, irritated many at the time. But shareholders in Railtrack did at least receive recompense for the effective nationalisation of the company.

Lucy Warwick-Ching

At a crystal ball event to debate some of the current issues affecting the wealth management industry, David Scott, Founder of Vestra Wealth, said that fund managers have a duty of care to their clients, whether through the good times or the bad. Communication was the key. With the current uncertainty in the capital markets and bubbles of rising and falling asset classes, there is a need to maintain a regular dialogue with clients who are looking for a mix of performance, integrity and trust from their wealth manager.

The FT’s Money blog is a forum for the latest news and insights from the UK’s personal finance scene. Matthew Vincent, the editor of FT Money and his team of reporters will upload their views and insights on what’s happening in the industry and how this affects people’s finances.

This blog is no longer active but it remains open as an archive.

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About our bloggers

Lucy Warwick-Ching is the FT’s new Money Online Editor and has been a UK Companies reporter covering tobacco, pubs and leisure companies as well as the deputy editor on House and Home.

Matthew Vincent is the FT’s Personal Finance Editor and was previously the editor of Investors Chronicle, where he also devised the award-winning online video The Market Programme, and produced the BBC-FT standalone magazine ‘How to be Better Off’. He presents the weekly FT Money Show audio podcast, and previously worked on the BBC TV programmes Short Change and Pound for Pound.

Alice Ross is deputy personal finance editor of FT Money. She specialises in pensions, investments and investment trusts. Alice joined FT Money in April 2008 - prior to that she was deputy editor at Money Management magazine.

Ellen Kelleher has been a personal finance reporter in the UK for close to four years. Before arriving in London, she worked in the FT's New York bureau where she covered the insurance sector.

Steve Lodge is a personal finance reporter on FT Money specialising in savings.

Josephine Cumbo has written about all aspects of personal finance but currently specialises in insurance. She also covered company news for Prior to working at the FT she was a news reporter for the ABC.

Tanya Powley is a personal finance reporter on FT Money specialising in mortgages and the housing market. Tanya joined FT Money in November 2009 after working in Australia covering personal finance for the Australian Financial Review and its sister magazine Asset. Prior to that, Tanya wrote about mortgages for UK trade newspaper Money Marketing.

Jonathan Eley is editor of Investors Chronicle, and has been with the title for ten years. Before that he worked for newswires and trade journals in London, New York and Hong Kong.