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Charge caps and tax cuts: What advisers can expect from the Budget

Chancellor George Osborne will enjoy the first Budget where he can deliver unambiguously good news next Wednesday.

Growth is booming, unemployment is falling quickly, inflation is on its 2 per cent target and house prices are rising.

With just over 12 months to a general election the political battle lines have been drawn. Osborne will focus on the good news while Labour leader Ed Miliband bang the drum on the cost of living crisis.

On pensions:

The Association of British Insurers is pushing the Government to “relax and simplify” trivial commutation rules.

Current rules allow people over 60 years old with total defined benefit and defined contribution pension savings worth less than £18,000 to take their entire pot as cash.

Hargreaves Lansdown head of pensions research Tom McPhail says: “Reforming the small pots rule will help to unlock improvements right across the pension system. Small investors will get their money back; insurers will be able to sell better value annuities to large customers; it will help to minimise auto-enrolment opt-outs and it will push cash out into the economy”.

Pensions tax relief changes are always possible in the Budget but major reform is likely to be saved for the general election manifestos.

The Treasury is considering an increase to income drawdown limits based on ill health, in a similar underwriting process to enhanced annuities.

Advisers and providers are also eagerly awaiting an update on the pensions charge cap with rumours the consultation could be published alongside the Budget.

The Government was forced to delay its implementation by at least 12 months to April 2015 and Money Marketing recently reported the reform could be dropped because it is “too complex”.


On housing:

Mortgage brokers, lenders, estate agents and anyone else in the property market are once again calling for stamp duty reform and an end to the slab structure.

Scotland is reforming its system to make it more progressive but the UK housing industry looks set to be frustrated once again.

John Charcol senior technical manager Ray Boulger says the Scottish independence referendum could force Osborne to counter the SNP’s fairer tax claims.

He says: “There seems no logical reason why the Chancellor would score such an obvious own goal by not taking his last opportunity before the Scottish referendum to radically reform stamp duty.”

On personal tax:

There is a big debate going on in the Treasury about which taxes to cut. Liberal Democrats are pushing for a further increase to the personal allowance in 2015 to £10,500.

Meanwhile, two former Tory Chancellors and the powerful Free Enterprise Group of 40 Tory MPs are calling for increase to the 40p tax band to help middle earners.

Cicero Group chief corporate counsel Iain Anderson says: “Current polling is clearly showing the Lib Dems are gaining the most voter attraction from their policy on the personal allowance. So I think the Chancellor will try and use the Budget to try and grab it back while he is in the spotlight.”

Nigel Lawson
Former Chancellor Nigel Lawson speaking in the House of Lord

On tax planning:

The Treasury is expected to finally announce its decision whether to apply new rules on pilot trusts and multiple nil band trusts retrospectively.

In May, HMRC launched a consultation proposing a change to the rules on multiple trusts with regards to the £325,000 nil-rate inheritance tax allowance and how it applies to the 10 yearly 6 per cent charge.

At present each split trust set up by the individual is granted the £325,000 nil-rate allowance before the 10 yearly 6 per cent charge is levied. However, HMRC wants this allowance to be split across all the trusts set up by the individual when it comes to calculating this charge.

Syndaxi Chartered Financial Planning managing director Robert Reid says: “I am expecting details on trusts, particularly estate planning. HMRC has been saying it will do something on pilot trusts and multiple nil band trusts but retrospective action could have a big impact.”

On savings:

Last year the Treasury was floating the idea of cutting the lifetime Isa allowance to £100,000 to curb Isa millionaires.

Meanwhile the industry is calling for simplification. Banks and building societies want the allowances for cash Isas and stocks and shares Isas to be equalised at £11,520. Only £5,760 is currently allowed in cash for the 2013/14 tax year.

Hargreaves Lansdown has some more radical ideas such as allowing spouses to inherit Isa allowances and creating a long-term care Isa to boost saving for care costs.


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