The budget? Budge-it more like…Posted on: 22 March 2010 by Mark O'haire
Independent financial advisor Peter McGahan looks ahead to this week’s budget announcement and looks into what we can expect to hear.
Don’t expect anything at all. Remember when we wrote about the impending 'doom' in January '08 when the government and Bank of England were talking about inflation. We then explained that the economy was indeed 'being brought forward' and to expect the doom merchants to ensure that if we were going into a recession we would do it the right away. Sure enough it happened, and we are coming out of it by design just as the election arrives.
And so what sweeties might you expect to lure you for the votes, or will it be a non budget which will be followed post election by a battering ram. The latter I will imagine.
I suspect the concerns regarding capital gains tax will come true, not pre election, but post election.
Capital gains tax is now widely tipped as a change where the current rate is taxed at 18% as opposed to the higher rate of income tax of 50%. They are relying on the amnesia of the tax payer.
Whilst the basic rate of capital gains tax is 18%, the allowances that previously existed pre the 18% band meant that when most people added their gain to their income, there was probably less than 18% tax to pay. Any alteration to this rate of tax will be seen by many as benign, whereas it is a rip off. Don’t expect that in the budget, that's an election loser. Brace yourself afterwards.
What would I like to see in the budget and might we see? Look closely for something for elderly savers. I suspect a new tax band may be introduced for savers who have been battered because of bank's inadequacies. Savers today enjoy rates of well, nothing, whilst banks lend it out at 4-5%! I am confused.
The Bank of England and government have allowed these banks to get away with shenanigans beyond comprehension but it’s the saver who is having to pay for it. I suspect a temporary zero percent tax rate for savings up to a prescribed level will go a long way to show intent. Alternatively they could double the cash ISA allowance for those over 65. Ignoring this problem is a vote loser.
What else would make sense? Corporation tax should be reduced heavily to bolster company's reserves or even consider a temporary tax measure that allows companies a much lower tax on retained profits so they can gain some stability without having to worry about a hefty tax bill.
Measures need to be put into place to prepare business for the impending honeymoon ending of lower rates and quantitative easing. This will mean that we will soon enter a very, very rough period that will make this little river rapid seem like a scene from the wind in the willows.
The government also needs to think about the taxation of brains. At 50%, coupled with national insurance and all the other measures of tax (including those local) that is a step too far.
Entrepreneurs should be encouraged rather than being penalised. They are the life blood of the country yet somehow they are discouraged from making money. This stifles effort, vision and brains. It simply encourages top business people to leave, or just take a long relaxing break until tax rates get back to normal, but they are exactly the people who will propel us out of recession. So either relax the tax rate at the higher level (there is no evidence in history to show that it has a positive impact), or slash corporation tax.
Petrol prices? Its an easy touch. Labour might say that when they took over, the tax on petrol was 72.9%, and the conservatives might say that although it's now only 66.99% that motorists are paying nearly twice as much money (75p as opposed to 39p). Personally I would say they are both clueless. Drop the tax.
By Peter McGahan
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Peter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.
Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.
Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.
If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email firstname.lastname@example.org.
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