End of year rant!

We are at the end of another year already. Shocking I know. This year seems to have passed through almost as quickly as the national debt has risen. It has been a year of political limbo, with so many decisions being made in view of next year’s election.

Will the election be March to save going through another nonsense budget, or will the idea of door knocking in the dark and snow ensure a May election. Either way, the Pre Budget Report certainly was done with this in mind. A banker’s bonus tax put in to drum up more votes than tax, and both stealth and blatant increases on anyone earning more than £150,000. As for the bonus tax, it probably won’t generate enough to offset the cost of the department created to implement it, as it will be the easiest tax planning the banks have done in ages.

Anyone earning over £180,000 will not only be hit with 50% tax, but 30% benefit in kind taxation on the employers pension contributions (they managed to keep that quiet for a few days), only 20% tax relief on the employees contributions (so pension contributions taxed at 30%), plus have taxation of 40 or 50% when you come to take the money out. And of course taxing someone’s income twice is never enough, so Inheritance Tax thresholds will also be frozen to really annoy the Tories.

We are in recession with a massive public debt though, so you might argue it makes sense to tax the higher earners so that increasing employment and company growth can be the top priority. An increase of 1% in National Insurance (tax on employing people) doesn’t therefore seem like joined up thinking, but when has that been necessary in politics? And what did we find out about how we half the national debt as promised? Well nothing really. That would involve a politician planning for the country’s future, something that is of little interest when the next 6 months is all that matters!

What is the moral of this story? I suppose financial planning becomes even more vital. Where in the past pensions were usually the main port of call, other options start to become much more attractive. Ensuring that trusts are used to protect your wealth being taxed time and time again is vital. Making sure you use the few tax breaks the government gives you (e.g. ISAs, Venture Capital Trusts, Capital Gains Tax allowance & Annual Inheritance Tax Gift Allowance) is key, as they are “use them or lose them” allowances. And once you are at retirement age, drawing money out of pensions in the correct manner to allow you to manage your taxation has never been so important. With the regularity of tax and pension changes at the moment, flexibility is key, and utilising different strategies essential.

Let’s hope that the new year brings lots of prosperity, a little more continuity and some simplification through red tape removal, although I am not sure the Tories are really geared up for the changes that are needed. They definitely need to have a bold 18 months if they get in; it is time for change! The pension area, for example is a complete mess. If the old age pension was put back to say age 70, possibly even later, a decent meaningful level of income could be provided. People could save for a set period of time if they wanted to retire earlier, and layers of complexity removed. With an increased basic pension, earnings related pensions could be scrapped, which would solve the deterrent of saving for lower earners, and remove around 48,000 pages of legislation, not to mention those employed to administer it. This is the perfect example of layer upon layer of bad legislation, rather than fixing the problem properly.

That’s it, the rant is over! Planning is the key, and if you would like us to help you build that plan, we’d be delighted. Remember; 'we don’t plan to fail, we fail to plan!’ Make sure you don’t.

From all of us at Efficient Portfolio, we would like to wish you a very happy Christmas, and a prosperous new year.

Merry Christmas.

Written by,

Charlie Reading Dip PFS
http://www.e-fficientportfolio.co.uk/

Tel; 01536 772077


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