Budget endorses Green Investment

To be fair, I don’t think George was actually talking about me, but nice to be name-checked anyway!

On a more serious note, near the start, Mr Osborne announced this would be a fiscally neutral budget. Economically it may well be that but for financial planning it erred on the side of positive for me.

Nobody expected a give-away Budget, so we were not disappointed. The HM Treasury document totalling 101 pages provided a good summary of George Osborne's plans and the numbers behind it.

One of the headline grabbers was Income Tax and National Insurance to be merged (possibly, after lengthy consultation). Another was that the 50% tax rate is temporary. With apologies for having my cynicism to the fore but even if the 50% rate is scrapped, the next 40% band + 12% NI still equals a potential new rate of 52%!
As has already hit this morning’s front pages and cornerstone of the opposition response on the day was that the ‘Plan for Growth’ is anything but.
The newly appointed Office for Budget Responsibility (OBR) will in future provide “independent” forecasts on which the Budget will be set, rather than the figures being “fixed to suit the Budget”. Growth forecasts announced are:
2011 1.7%
2012 2.5%
2013 2.9%
2014 2.9%
2015 2.8%
Inflation (OBR figures) is expected to be in the range of 4% to 5% this year, 2.5% in 2012 and 2% in 2013. The target, based on CPI, remains and was reiterated at 2%. The debt figures remain mind bogglingly huge, at c. £146 billion this year, around £122 billion next year and falling to £29 billion in 2015/16. Oh yes, and our foreign currency reserves will be rebuilt, but not by buying gold!


The Chancellor stated four overarching ambitions for the British economy. These measures to aid the 'Plan for Growth' are:

• To create the most competitive tax system in the G20.
• Make the UK the best place in Europe to start, finance and grow a business.
• Encourage investment and exports as a route to a more balanced economy.
• Create a more educated workforce that is the most flexible in Europe.

In July last year, the Government set up the Office of Tax Simplification to provide independent advice on how to simplify the UK tax code – which recently overtook India’s to become the longest in the world. As a result of this review, the Budget abolished 43 tax reliefs.
He also said 100 pages would be removed from the tax book. My followers on Twitter will have noted I suggested this would simply be by printing it using a smaller font size, boom-boom.

HMRC and HM Treasury's "Overview of Tax Legislation and Rates" ran to some 240 pages and although in initial skim I have seen some tax reliefs abolished, in the main, there appears to be no major impact on core financial planning strategies (phew…!). But, as with any Budget, further analysis will be required once more detail is issued.

Some recent Government announcements were also referred to in the Budget, but not much more detail was provided. Of interest to me as a financial planner will be the forthcoming consultations on:

• Simplifying and merging the Income Tax and National Insurance Contribution regimes; not an easy task if Government revenues are to be protected.
• Moving towards a Universal Pension of £140 a week, which will include the abolition of contracting-out through defined benefit pension schemes.
• The abolition of Life Assurance Premium Relief (for those Green Financial clients with life insurance policies still running but started before 1984)
In line with the first stated key economic ambition, the Chancellor announced that he would reduce the rate of Corporation Tax by 2% from April this year with a further 1% reduction over the next three years, which will mean a corporate tax rate of 23% in four years time – lower than all of the current rates in the other G7 countries.

However, in recognition of the support received by the UK banking system over the last couple of the years, the bank levy will be increased to offset the reduction in the rate of Corporation Tax.

Moving onto the second ambition, George Osborne, as well as confirming an agreement with the banks to increase lending to smaller companies by 15%, announced changes for the provision of start-up capital, particularly to Enterprise Investment Schemes in which a number of my more risk and volatility accepting clients have previously invested (definitely NOT investment vehicles for the faint hearted or loss/risk averse!). From April this year, the income tax relief for investors will increase from 20% to 30%. From April 2012, the eligible investment amount will be doubled, the size of eligible companies will be increased and the limit on amount invested per company raised substantially.

The third stated ambition was for a more balanced economy and the Chancellor touched upon a number of changes to legislation to broaden out the contributions of different industries within the UK economy such as the one year extension of the current rate relief holiday for small businesses until October 2012 at a cost of £370 million to the Exchequer.

To assist first time buyers, the Chancellor announced that £250 million raised from the bank levy will be used to fund a new shared equity scheme, First Buy.

21 new Enterprise Zones are to be created, and the currently interesting Business Premises Renovation Allowance, due to end, has been extended.

As regular readers of my output will be aware, the State Pension Age is due to rise to 66 by 2020 but the Chancellor has announced plans to set up an automatic mechanism for future increases in the State Pension Age based on regular, independent reviews of longevity. In addition, following the completion of John Hutton’s report on pension benefits, the Pensions Minister, Pensions Secretary and the Chancellor will be working towards a new simplified single tier pension. It is anticipated that this will result, in future years for future pensioners, in a c. £140 per week state pension but that it won’t apply to existing pensioners.


I recently wrote to many longer term clients with a letter regarding elements of the ‘Retail Distribution Review’ (RDR)

In a separate announcement issued by HMRC to the "Financial Services sector" they identify and note again that the RDR will introduce a new regulatory framework into the retail financial services market.

HM Treasury and HMRC have been working closely with the FSA and industry bodies to understand the changes required to deliver the RDR and to provide clarity on areas of concern for advisers and providers around charging structures and the tax implications the new environment creates. HMRC are exploring their options and will be updating their technical guidance on:

• The HMRC VAT Guidance and Registered Pension Schemes Manual.
• Technical Advice on CGT
• Products written in trust.

Once further guidance is issued I will provide more detailed analysis on this and implications for clients if applicable.

Personal taxation and duties
Amongst changes (improvements in my opinion) to Gift Aid, a big announcement on Inheritance Tax (IHT). In future (where death occurs on or after 6th April 2012) if one donates (leaves, gifts) 10% of the net estate to charity, the Government will provide a 10% discount on IHT – no beneficiaries will be better off, he says. We think this should encourage charitable giving and has the effect of reducing the well-known 40% rate to only 36%, though expect more after consultation.

Tax evasion AND avoidance are to be targeted (surely that raises the question, “aren’t they anyway?”) and Capital Gains Tax schemes seem sure to be in the firing line. As ever, I will restate my oft used phrase that “no client of mine will ever be an HMRC test case”. It remains that I do not get involved in schemes that are untried or untested. All my financial planning is sensible, tried & tested and well within the established rules

Personal allowances will, as expected, rise by £1,000 on 6th April, to £7,475, rising again in April 2012 to £8,105 as the Coalition keeps its promise to take this up to £10,000 in this Parliament.
As regards excise duties, no changes on alcohol, tobacco up by 2% above inflation (from 6pm), vehicle excise duty by inflation except on commercial vehicles where it is frozen, and mileage allowances up to 45p per mile.

However, the BIG news was saved to last as regards personal finances for anyone with a car (OK, not those of you with electric cars!!)

The “Fair Fuel Stabiliser” is introduced, whereby the oil companies will be taxed (to the tune, the Chancellor calculates, of £2 billion), thereby paying for:
The immediate cancellation of the escalator
A deferment of the 2011 inflation-linked fuel duty rise (to April 2012 and the April 2012 one to 2013)
A cut of 1p per litre off fuel duty from 6pm on the evening of the budget
This will apply whilst, subject to clarification after consultation, the oil price is above $75 a barrel – at that point the oil company tax will be reduced and the escalator re-instated.

And to return to where I started this correspondence, a further £2 billion was added to the Green Investment Bank (no relation!) which will now have £3 billion for use in green projects from 2012, starting a year ahead of schedule.

So in summary, a neutral Budget as regards the nation’s finances, but certainly not for my clients where, on balance, I see positives and as usual, much more will come out in the coming days…

Ian's Budget 2011 Predictions (ahem!)

Sore Throats to be taxed

Everyone in UK to receive a free canary (source: typo in original civil service pre-budgie report)

Variable levy on Ogres and Giants living under gap spanning structures (so called Troll Tax)

£100m to fill potholes announced followed by £100m for unemployed to dig holes in road (apologies to G Hoffnung, R Barker et al)

1p Tax on each and every email sent (incredibly a real idea put forward by RMTBobCrow)

Free WiFi for the under 5s

New 10% VAT rate on existing 20% VAT rate reduced by 5% if pass means testing at till (what do you mean, you don’t understand?)

£1.50 Charge on everyone that listens to budget, legislation to take effect at end of this sentence

New Tariff payable by people who leave the tops off pens & tubes of toothpaste (this one will hit my wife hard, but gets my vote)

To reduce deficit: Higher taxes and lower pensions for ALL public sector staff (I say all, not MPs, let’s not get silly about this)

Stamp Duty on property purchase to be called House Tax (idea immediately scuppered by Sir Humphrey)

2021 Census to be replaced by info collection using Tesco Clubcard and Nectar (will give better data)

Exercise Excise to be exorcised

NHS to be rebranded SNH – cost estimated at £5billion, patient care will not be affected

Betting Odds: Most uttered word by chancellor, 7/1 Supercalifragilisticexpialidocious (MSWord spellchecker got that!)

Guide to end of tax year 2010/11

Full colour pdf available for download at:
http://www.iangreen.com/downloads/ENDOFTAXYEAR_SPREADS.pdf

7 Financial Year End Tips – Checklist 2011

The weekends are passing fast in the run up to the end of the tax year. Before we know it, it will be 23rd March when the budget will be announced so why not get a head start on the financial planning needed before the end of the tax year and check the list below.

1. National Savings
The interest rates may not be market leading but as National Savings and Investments is 100% backed and guaranteed by the UK Treasury it is arguably the safest place for your money. Disappointingly they currently have no tax free savings certificates on offer – But you can save up to £30,000 tax free into Premium Bonds with a chance every month to win £1 million or one of hundreds of thousands of other tax-free cash prizes. And you can get your original money back at any time.

2. Capital Gains Tax
Got Gains? - Have you incurred capital gains this year? Each individual, even children, have a Capital Gains Tax (CGT) allowance of up to £10,100. You could crystallise gains (for example from gains in the value of shares you hold) without paying a penny of tax.

3. Use your ISA allowance
You can shelter up to £10,200 this tax year. Funds saved in an ISA (cash or stocks & shares) means you pay no further income tax and no tax on any gains.
For more reasons why to use your ISA allowance see the article on:
http://greenfinancial.blogspot.com/2011/03/fye-tips-55-reasons-isa.html

4. Use your pension allowance
Depending on your situation you could contribute anywhere from up to £3,600 to £255,000 before April.
Everyone, even non-earners or non taxpayers can pay in up to £2,880. If you pay this amount the tax man automatically adds £720! Making a total of £3,600 invested.
So real cost to you is £2,880 for £3,600 in your pension
Parents and Grandparents can even do this for their children or grandchildren.
See previous blog posts for more end of tax year pension tips


5. Inheritance Tax
There are numerous ways to mitigate or reduce your liability but a simple end of year allowance that is often missed is the ability to give away £3,000 from your capital each year without any inheritance tax implications. This saves £1,200 per person in potential future inheritance tax liability.
Remember you can also give away smaller gifts of up to £250 per donee

6. Venture Capital Trusts
Often only for the brave of heart or very risk orientated Venture Capital Trusts (VCTs) offer adventurous investors the chance to invest in some of the smaller companies in the UK. In return for taking on more risk a generous tax rebate of up to 30% could be available. Definitely one for professional advice though, not generally a ‘DIY’ product.

7. Will Review (or finances in general)
Have your circumstances changed this year. Births, Deaths & Marriages and all sorts of other happenings can be the catalyst for reviewing and changing your Will, or even triggering a review of your finances in general. Financial Spring Clean anyone?

And finally, want to keep one step ahead?
Why not plan for next year’s ISA contribution now? The annual allowance will rise to £10,680, with half of that available to invest in cash if you wish.

The FSA - poor value for money?

On January 21st, 2011 Money Marketing Online reported the following:
http://www.moneymarketing.co.uk/regulation/fsa-freezes-staff-pay-for-second-year/1024971.article
The FSA has told staff that they will not be getting a pay rise for the second year in a row.
An email sent to regulator staff today says: “Last year, as you know, the vast majority of staff did not receive pay rises for 2010.
“We have announced today that again there will be no across the board pay rises for this year.”
This time last year FSA chief executive Hector Sants emailed all staff to say the regulator had not put aside funds for pay increases for 2010.
He added that the FSA’s bonus pot for 2010 would be the same level as 2009 at 15 per cent of the total salary pot.
A spokeswoman for the FSA says the 2011 bonus policy is in line with this.

On 3rd March 2011 Moneymarketing online reports:
http://www.moneymarketing.co.uk/regulation/fsa-wages-rise-22-in-five-years/1027064.article

Average salaries for FSA staff have risen 22 per cent over the last five years to £51,232.

Figures from the regulator published in the Financial Times show that excluding directors FSA staff were paid an average of £51,232 for the year to March 2010, up 6 per cent from 2009.

Senior management wages have risen 14 per cent since 2005/06, from £206,391 to £236,950 in 2009/10.

The enforcement division saw the largest jumps in salary, with average salaries up 26 per cent from 2005 to £53,207.
--------------------------------------------
So whilst apparently no one was getting payrises, average salaries are going up. Obviously lots of explanations for this: one example might be people leaving and replacements coming in on higher salaries - but anything I can come up with has a cost attached to it - take my example above, there is redundancy for the person leaving and recruitment costs and training costs for the new person.

As someone that pays a small fortune from my business profits towards the upkeep of the regulator, and given the poor performance of the FSA in general (banking crisis anyone?) I certainly don't feel I receive value for money from them.

FYE Tips - 5.5 Reasons - ISA

5 and a half reasons to use your ISA allowance before April 5th 2011

This is not intended to be a political statement. As with all my blog posts professionally I remain neutral. Of course I have a personal political point of view but that has no place here.

But have you, like me, noticed that the Government is getting better at taking our money off us?

With taxes rising and inflation eating into the purchasing power of our salaries and savings there has never been a better time to take advantage of one the easiest and arguably most generous tax break of all – investing in an ISA (Individual Savings Account)

Still not convinced? Here are 5 reasons to use your ISA before April 5th this year:

1. Avoid Higher Taxes
More and more of us are being caught in the higher taxation net. No matter what individual tax seems to go down, the overall tax burden is continuing to rise. The so-called ‘tax freedom day’ when we stop contributing to Govt coffers and start to keep our own money (see http://greenfinancial.blogspot.com/2010_12_01_archive.html) is getting later and later in the year – This year it is May 30th.

The Government’s stated desire to take increasing numbers out of the tax system altogether by raising the personal allowance (They are aiming for the first £10,000 everyone earns to be tax free) has come at a price. It is being paid for by those who would have been at the top end of the basic rate tax band but have now tipped into the ranks of the “higher paid” (even if bringing up a family on £40,000 or so doesn’t exactly feel like the high life!).

For those fortunate or hard working enough to earn over £100,000 the personal allowance is progressively taken away until at about £113,000 there is no personal allowance at all. So if you earn over £150,000 half of your earnings go straight to the government. All earners are about to pay another 1% a year on National Insurance (surely now just income tax by any another name!). I could go on

2. Save More Tax Free
The ISA tax break is actually getting better.
Having been increased to £10,200 last year, the annual allowance is due to rise by the rate of inflation in April to £10,680. That means that a couple can put aside more than £21,000 a year between them completely free of further income tax and with no capital gains tax to pay - ever. Mixing both cash based and shares based ISAs means that for most people the ISA allowance, coupled with the £50,000 a year that they can put in their pension each year, means they don’t need to worry so much about tax on any of their short, medium and long-term savings.

3. Use It or Lose It
If you choose not to take advantage of it by 5 April you can’t roll it over into the next tax year. Many people have built up really sizeable pots over time – At Green Financial with have many clients with six figure plus ISAs
We have many more clients with far more modest amounts gradually accruing via the discipline of regular monthly savings. But if you miss the opportunity there is no going back.

4. Flexibility
Sure, Pensions are great, they have their place in long term saving and the upfront benefit of tax relief on contributions is especially attractive to higher rate taxpayers (and even more so to those paying the top rate of 50% income tax). But there is a price to pay for the tax relief uplift and it is that your money is locked away until at least the age of 55 … and even then there are restrictions on what you can do with your money … and you pay tax on the income you earn from your pension pot. With an ISA there’s no upfront benefit but there is also no additional tax to pay ever again … and there’s no restriction on when and how much money you can take out of an ISA. For some this freedom is the difference between starting to save and not. ISAs are flexible in other ways too. You can shelter most forms of savings and investments in an ISA. With some limitations, you can mix and match cash and stocks and shares and funds (including property funds) within the ISA tax wrapper. If you don’t know where you want to put your money and are still deciding whether to go the ‘DIY’ route or to seek fee based professional independent financial advice then a ‘cash park’ type ISA could be a good stopping off point while you make up your mind.

5. Avoid CGT
Some people say that ISAs are not really all they are cracked up to be, especially for basic rate taxpayers. It is true that most people never exceed the £10,000 or so of CGT (capital gains tax) we are all allowed to incur each tax year before we are liable for tax. But you only need to accumulate a £100,000 pot for a 10% annual return to tip you into tax-paying territory. Steady saving and a tail-wind from the market could easily get you there but if you have not bothered with the ISA tax wrapper in years past you cannot rewind the clock later on. When CGT was just 18% that might not have seemed such a problem but at 28% it is much more of a consideration and who knows where it might go in future.

5.5 And finally … One of the best things about the use it or lose it ISA allowance is the way that around this time of year (often referred to as ‘ISA season’) it forces us to be disciplined about saving over time. The astute investor can, over time, benefit from the phenomenon known as ‘pound cost averaging’ – see http://greenfinancial.blogspot.com/2011/02/pound-cost-averaging.html)

Whether month by month or viewed as year by year, what this means is that we are obliged to invest in the market in all phases of the investment cycle and so we benefit from buying when markets are depressed and when, left to our own devices, we might shy away from committing ourselves.


So there we have it, five and a half reasons to use your ISA allowance before April 5th 2011.


The required small print: Please don’t take this article as personal or specific financial advice. It is intended to be guidance only. The value of any tax break will depend on your personal circumstances. Tax and the associated laws are subject to almost constant change. This is correct as at the time of writing. E&OE. If you are in any doubt as to whether this information is of benefit to you please seek independent financial advice, ideally fee based. Please remember if you invest in stocks and shares the value of your investment can go up as well as down. Other elements such as currency exchange fluctuations could affect the value of your investment. If you have property based investments you may not be able to sell when you wish to realise your funds. Past performance is no guarantee of future returns. If you invest in cash based investments inflation may erode the purchasing power of your savings.