I guess part of us all would want to be chancellor for the day, or at least be able to set the Budget. But the position Jeremy Hunt finds himself in this time is not one I envy.
It felt like his last Budget – and probably the last of the Conservatives. It’s certainly the last chance to win back the electorate. Indeed, the latest Ipsos Political Monitor showed only 20% of people intending to vote for them. The issues of inflation and the economy are second and third most important to the electorate, with Labour seen as having the best policies on managing the economy and taxation.
The pressure to turn that around in a single document must be huge.
If it can be done, it needs to be reconciled with the self-imposed fiscal rules – government borrowing must reduce over time. All this in an environment framed by pandemic-driven debt, war-driven inflation and a politically-driven Brexit.
If the freedom to act separately from the European Union is ever going to pay a Brexit dividend, this is when it needs to. The economy needs a foundation and spark for long-term growth to lift it out of stagflation – but the party needs votes in the short term.
Advisers need to consider the current tax and product rules but also what they might be in the future.
Whether or not the fall in inflation, cut in National Insurance and rise in disposable income is felt by the client sufficiently to invest more is, of course, down to the individual. But perhaps the expectation of falling interest rates will mean some of that cash coming back.
Will the additional £5,000 British Isa allowance encourage them further? And will it encourage them to invest in the UK?
Advisers can help most clients avoid paying tax on their general investment account of significant sums – is an additional £5,000 a big enough impact?
The advice decision could end up being between the Isa and asset allocation and investment freedom. That said, it is not implausible dividend taxation and capital gains tax might change in a future government, with the Isa being retrospectively taxed less likely.
The creation of the British Isa comes alongside a push to get defined contribution pension schemes to invest more in the UK, including in private assets. Hunt clearly wants to take every opportunity with all types of savings and investments to boost economic growth.
It may well add growth but it will add risk to the retail investor who would need to diversify. It was also said today that to ensure people have the opportunity to invest in a diverse range of investment types through their Isas, the government is working to bring forward legislation by the end of the summer for certain fractional share contracts. Could that be digital fractional ownership of residential property?
Turning to property and capital gains tax, buy-to-let investors have suffered from increased taxation. With the loss of mortgage tax relief, many have wanted to sell and invest elsewhere. Will the fall of higher rate tax from 28% to 24% be enough for them to now do that? Perhaps into the new British Isa?
Meanwhile, the transitionary arrangements for the abolition of non-dom status provides for a two-year temporary repatriation facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax, opening opportunities for new clients and investments.
Elsewhere, the changes to the income thresholds at which Child Benefit is reduced (£60,000) and eventually lost (£80,000) opens up a new target group of parents who could reduce their tax line below those levels with tactical pension contributions.
While there weren’t any changes to inheritance tax (IHT) – unless you own a holiday let or are a non-dom – there was a practical change for estates with mainly illiquid assets. You will no longer need to try and get a commercial loan to pay IHT before applying to obtain a “grant on credit” from HM Revenue & Customs.
It would seem pointless to make this change if the government was planning to abolish or materially change IHT in the future, so perhaps it is here to stay.
At our conference this week, chair of the Treasury Select Committee Harriett Baldwin said, “Only the rich, the 8%, can benefit from healthy financial options.” Do some of the 92% now have more investable assets to be able to afford advice?
Whether this Budget is suitable to the electorate remains to be seen.
Chris Jones is chief proposition officer at Dynamic Planner
The fact that Govt. referred to IHT not being amended until 2025/6 infers it IS here to stay… Labour have said it will retain it though, perhaps, in a different form…
Although the most despised tax in UK, no one seems able to ditch it. From Tory embarrassment/amnesia, to Labour not wanting to be branded ‘class traitors’ any more than they already are.
Most countries do have IHT in some form, but the UK stands alone in its implementation… both the rate – high, and the lack of any intermediate scale.
Interestly, as said here passim in MM by me, there has been, and continues to be, NO action taken or even commented upon by HMRC or Govt. on the widely marketed avoidance schemes – notwithstanding the HMRC stated position.
Is there some secret deal most of us are unaware of?
I refer to the extraordinary structure, and usuary cost of packaged schemes, E.g. Octopus the market leader. In any other sector of fiscal engineering, the DOTAS molecular acid would be all over it!
Yet, today, we saw the return of a long forgotten paradigm..’Cool Brittania’.. maybe Hunt is budding for the new Bond role – he seems adept at escaping tough situations – all this new film/premium tv stuff…
Is it time to blow off the accummulated file dust… and recommence circular transactions, wierd deposit structures, and, of course, daylight lending… There is also a whole new generation of footballers to be exploited… and their agents too!!