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Introduction

This year&#39s pre-Budget speculation in the financial services industry was focused on

  • possible further changes to National Insurance – notably raising the upper earnings limit
  • changes to the taxation of life policies
  • targeted IHT reform
  • changes to offshore fund taxation and
  • possible reform of the rules on residence and domicile.

What follows are the main changes proposed that we believe will be of greatest interest to financial advisers:

  • A fundamental change to the taxation of chargeable event gains arising under UK life assurance policies
  • Increases to National Insurance from 2003 across the board &#45 not an announced change this year but an important implementation of proposals made last year. This includes a 1% rate for employers, employees and the self-employed without limit on all earnings above the upper limits
  • An increase in the CGT annual exemption to £7,900 per annum
  • A simplification of certain of the capital gains tax rules
  • Tax avoidance measures aimed at second hand endowment policies
  • The increase of the IHT nil-rate band to £255,000
  • Certain changes designed to prevent life policies being used to exploit loopholes
  • The introduction of the Child&#39s Trust Fund.

In the light of this it is important, in our view, to ensure that you are equipped to have sensible discussions with your key clients and distributors (as appropriate) on the key taxation issues arising from this year&#39s Budget.

We believe that, even where taxation changes have not been made, there is still merit in using the Budget (and the national &#34tax advertising campaign&#34 that surrounds it) as a catalyst for reviewing the affairs of clients with a view to improving their tax and financial wellbeing. At a time when there is significant competition to provide financial services to clients, we hope and trust that this Budget Bulletin will help you to do so in a way that will strengthen your relationship with them, enable you to create new business relationships with new business clients and to deliver more effective solutions.

Especially given the current uncertainty in investment markets and the consequent (general) reluctance of investors to assume high degrees of investment risk in the quest for acceptable returns the value that can be added to the “bottom line” through tax planning becomes of greater significance. In addition, these conditions reinforce the fact that regardless of investment market conditions advice will always be needed, valued and paid for by carefully targeted clients. However, these clients will be comparatively demanding. Their expectations will be high. Consequently, relevant and timely knowledge, manifesting itself in demonstrable understanding and advice that reflects an individual&#39s or business&#39s objectives will be the key source of sustaining competitive advantage for advisers.

The aims of this Budget Bulletin are:-

  • to explain the Chancellor&#39s main proposals
  • to identify what those proposals mean
  • to review the tax system as it is and will be for the remainder of this tax year
  • to look ahead, where appropriate, to known or likely future changes in taxation
  • to consider the significant changes to taxation that, whilst not proposed in this Budget, will come into effect shortly, and
  • to highlight in particular (but not exclusively) tax and financial planning strategies that are founded on or involve, directly or indirectly, financial services products.

All the information and views given in this Bulletin are presented for general consideration only. Accordingly, Technical Connection can accept no responsibility for any loss occasioned as a result of any action taken or refrained from as a result of the contents hereof. Readers and clients of readers must always seek independent advice before taking or refraining from taking any action.

The contents of this Budget Bulletin are based on the proposals put forward by the Chancellor in his Budget speech. These need to be approached with caution as the details may change during the passage of the Finance Bill through Parliament.

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