WHEN David Cameron and Nick Clegg stepped into 10 Downing Street together on Wednesday evening, it heralded a new era in British politics and a strong commitment to tackle Britain’s public finances. Unfortunately for those keeping a close eye on their money, their plans to get the country’s debts in order are going to have an effect on their personal finances, from mortgages to pensions and taxes.
While things are certainly still up in the air at the moment, and likely to remain so until at least the emergency Budget, there are some clear consequences of the new coalition government’s proposals and what they could mean for your personal finances.
One thing is for certain, people will be encouraged to save more for their retirement. Major changes to the pensions system have been proposed, notably the end of compulsory annuitisation at 75 and the expected phasing out of the default retirement age. Malcolm Cuthbert, a partner at stockbroker Killik & Co, says: “The man on the street would likely have a renewed interest in saving within a pension if, as proposed by both parties, they’d be able to access their funds early in some circumstances and compulsory annuitisation at 75 would be removed.”
This incentive is enhanced by the expected hike in capital gains tax (CGT) towards the rate of income tax. In this scenario, Adrian Lowcock, senior investment adviser at BestInvest, says that investors seeking income or growth should continue to use their full ISA allowances and other tax efficient wrappers such as pensions. Don’t forget that investments in venture capital trusts are CGT-exempt. Lowcock also advises transferring assets into your spouse’s name if you can – transfers between married couples are not deemed as a sale so the original cost and gain is transferred across. This allows you to use both allowances of £10,100 to maximise CGT exemptions.
But homeowners should benefit. Interest rates are likely to remain fairly low for some time to offset the fiscal squeeze, benefiting those on tracker mortgages. Although it is keeping energy performance certificates, the coalition has agreed to scrap Home Information Packs (Hips), which should save homesellers money, says Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA), adding that they will no longer need to shell out hundreds of pounds for a piece of pointless regulation that benefits no one. Vince Cable’s mansion tax has been scrapped – good news for those owning homes worth more than £2m.
While the mansion tax has been scrapped, the Tory’s proposals to raise the threshold on inheritance tax has also been pushed aside. Those concerned about inheritance tax should make a will, investigate discretionary trusts within the family and make gifts.
The Liberal Democrats did not get their way and child trust funds (CTFs) have not been abolished. But they are likely to be limited in scope, to the dismay of providers and parents alike. Already, providers such as F&C have been proposing alternatives, including allowing middle income parents, who would not be eligible, to opt to have their child benefit paid into a CTF instead.
Clegg and Cameron will affect your finances and you need to be on the front foot to protect yourself.