Tag: Chancellor’s Budget

Budget Comments – Follow Up

 Here are some more comments on the Chancellor’s Budget to follow on from my previous blog post.

Certainly one big issue for those trying to plan for their mortality is the statement that pensions will be brought into Inheritance Tax. AJ Bell have published a good summary of the current position which I reproduce here: “Under current rules, defined contribution pensions can be inherited tax-free if you die before age 75 and are taxed in the same way as income if you die after age 75. But Labour has announced plans that inherited pensions will count towards inheritance tax on death.

Applying any new tax on death will come with substantial challenges, which is why the changes aren’t being brought in until 2027, with a consultation period on how the rules will work having been opened. A major obstacle centres around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today. Anyone who made larger contributions into their defined contribution pension to make the most of the existing rules will also now be wondering what could happen to their pot when they die. If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug had been pulled from under them. We need to await more detail on this change”.

Certainly I plan to respond to any consultation on this issue when it appears (I can’t find it at present – where is it?). One problem I see is that SIPPs are usually written in trust, i.e. the owner on death of the pensioner is the trust and the nominated beneficiaries not the estate of the deceased. So how is this legally going to work?

There have been many criticisms of the Budget and interest rates have been rising as a result of the increases in Government expenditure. The Budget was worded so as not to scare many people immediately but the bad news is now sinking in now the detail has become more apparent. Farming families are particularly irate as only very small farms will be capable of being passed on without hefty IHT bills.

Well that’s some bad news and today’s other bad news is I have just been told one of our close neighbours has died. He was quite decrepit of late but even so this is a bit of a surprise. I hope he has taken good advice on IHT where clearly the position is getting ever more complex. I will certainly be taking expert advice on this when the details become clear.

P.S. The pension/IHT consultation is here:  https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment

This will require some consideration but I will certainly be responding to it and I will ask ShareSoc and UKSA to get involved too. Whoever wrote this proposal up simply has not thought this through properly. The legal implications are a nightmare. Make sure you respond to the consultation if you are affected by this.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

Budget Comments    

I shall just make a few comments on the Chancellor’s Budget announcements yesterday. There are many free analyses on the web from the national press and investment companies.

Many of the advance rumours turned out to be true although the worst predictions did not materialise. My stock market portfolio went up by 1.4% on budget day mainly from rises in small/mid cap shares although most of that disappeared this morning.

There was clearly some panicking about potential rises in capital gains tax before the budget causing people to crystalise gains. Yes there are rises – The main rates of CGT are currently charged at a lower rate of 10% and a higher rate of 20%, and these will be increased to 18% and 24% respectively from 30 October 2024. These new rates will match the residential property rates, which are not changing. So there will be some impacts on my personal tax bill as I pay capital gains tax on some share sales in some years. But I can always postpone selling shares to avoid the tax or move them over time into our ISAs where the generous £20,000 annual investment allowance remains in place.

But what about Business Property relief against IHT available on some AIM shares you ask? Removal of this was seen as likely to badly damage the AIM market. This is the key paragraph in the Chancellor’s statement: “The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses, and will be 50% thereafter. The government will also reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM”. This will affect around 0.3% of estates each year including mine.

There is a new limit on Agricultural Property Relief and Business Property Relief – no Inheritance Tax will be payable on the first £1million of combined agricultural and business property, to help protect family businesses and farms. Thereafter, Inheritance Tax will be payable at half the standard rate (meaning 20%). For quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, this same rate will apply at all times. Carried interest will now be taxed within the Income Tax framework, but at 72.5% of an individual’s marginal rate. Furthermore, the rate for Business Asset Disposal Relief (Entrepreneurs Relief) and Investors’ Relief will increase from 14% to 18%.

I don’t own any farms, but Jeremy Clarkson is not happy. He said on Twitter (X): Farmers. I know that you have been shafted today. But please don’t despair. Just look after yourselves for five short years and this shower will be gone”.

Comment: clearly many wealthy individuals invest in farms as a tax avoidance wheeze. These are businesses that often lose money and are lifestyle choices to a large extent. I have little sympathy for encouraging such businesses. The money would be better invested in new high-tech productive companies.

The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027, which will affect around 8% of estates each year. This is another change that will impact me – or to be more exact, my offspring.

Bearing in mind that the Chancellor chose to raise £40 billion in new taxes, the most damage has fallen on employers National Insurance and the freezing of allowances which will bring more individuals into the tax regime. However the promise is that the freezes in threshold rates for National Insurance and Income Tax set in the previous government will end. From April 2028, these personal tax thresholds will be uprated in line with inflation. Let us hope the Government remembers that promise.

The rise in employers National Insurance and the minimum wage will hit retail and hospitality businesses so watch out for the impact on such shares – generally you have to be very careful with those in modern times anyway.

There is of course still no indexation of capital gains so we will still be paying tax on illusory gains.

The Chancellor Rachel Reeves commenced her speech in Parliament with the usual political platitudes and rhetoric. She spent most of her time criticising the previous Conservative Government rather that outlining her plans for a brighter future. Higher taxes will clearly damage future economic growth. What is the extra money to be spent on? On defence is one thing and on the NHS but I am deeply sceptical that the NHS can benefit from more cash. The problem in the NHS is incompetent management. More cash might simply be wasted.

For full details of the Autumn 2024 budget see: https://www.gov.uk/government/publications/autumn-budget-2024

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

UK ISA Consulation and Investing in ISAs

The Chancellor of the Exchequer said in his budget speech that he was proposing to implement a “UK ISA” into which and additional £5,000 could be subscribed. Only UK companies would qualify for such investments. This is subject to consultation and you can read my response to the consultation here: https://www.roliscon.com/_files/ugd/8ec181_36b8502e9836413492f124ebc3ee9b4c.pdf

If you wish to submit your own response go here for the details and how to respond: https://assets.publishing.service.gov.uk/media/65e734d62f2b3bd5107cd8c5/UK_ISA_Consultation.pdf

My summary comments were as follows: “As relatively few investors probably contribute the maximum amount to ISAs each year I can see little attraction in being able to contribute an additional £5,000 to a UK ISA. Even those who do contribute the maximum amount each year will simply see it as a small increase in their ISA contributions and a complication to their portfolios. In general, I see little benefit in the establishment of a UK ISA and I doubt it will significantly increase funding for UK companies. This will just be an unnecessary complication of the ISA regime.

The AIC have just published an interesting note on the top performing investment trust ISAs over the last 25 years which you can read here:  https://www.theaic.co.uk/aic/news/press-releases/top-performing-investment-trust-isas-over-the-last-25-years . Many have done remarkably well with the best generating more than £250,000 from the maximum permissible investment of £7,000 in 1999. But the best tend to be sector specialists so choosing what to invest in is still important.

There was an interesting discussion between David Stredder and Chris Boxall at the Mello event on Monday. They both bemoaned the lack of good small/mid cap listed shares in which to invest and this has certainly affected trusts and funds of late. AIM listings are declining with few new IPOs. The dross is leaving and new listings are fewer partly because funding from private equity investors is now more readily available. To revive the UK stock market we need more vigorous action than inventing “UK ISAs”. The costs of listing and corporate governance thereafter are too high for smaller companies.

But it is not all doom and gloom. One successful recent listing was Fonix Mobile (FNX) who announced good results yesterday and today we had results from 4Imprint (FOUR) who are doing well in conquering the US market for promotional items. I hold both those companies so the message is that it is still possible to find good UK listed companies.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.