Thank goodness the Budget is over and done with. Sadly, we will all have to go through the painful experience again later in the year when the chancellor of the Exchequer (whoever that may be) reverts to an annual Autumn Budget.
Two Budgets in one year? How cruel, Cruella de Hammond.
Given the dog’s dinner Mr Hammond made of the one just gone, the Autumn Budget surely cannot be much worse. Or can it?
Having hit the self-employed with nasty National Insurance rises (and then embarrassingly reversed the decision a week later) and having presented grieving English and Welsh families with a horrible hike in probate fees (yet to be reversed), there is one issue that remains to be tackled.
That is a shake-up of the tax relief savers receive on pension contributions, a reform promised back in August 2015 when George Osborne (now earning a pile at asset manager BlackRock) ruled the Treasury roost.
A reform that was then pushed far into the long grass as a result of pressing political issues – an election to be won (successful) and a vote on remaining within the European Union to be fought (lost).
Betting on autumn
If I were a betting man – certainly not given my luck at the Cheltenham Festival – I would put a fiver on an announcement on this key issue in the Autumn Budget. It will not be pleasant and I am sure the middle classes will be up in arms. Goodbye higher rate relief.
But enough of the personal finance negatives (I have not mentioned insurance premium tax increases, another big ‘downer’).
With spring in the air, crocuses and daffodils blooming splendidly in London’s Hyde Park, it is time to be financially positive.
While the future for pensions remains uncertain – and increasingly subject to government interference in the shape of reductions in the lifetime allowance, annual contribution limits (for additional rate taxpayers) and the money purchase annual allowance – Isas are blooming. Almost as radiantly as the crocuses, daffodils and snow drops on my balcony at home.
For all the good progress made on pension auto-enrolment, there is no doubt that the government has decided it wants to push incentivised long-term savings the way of Isas.
This was confirmed earlier this year when the mandarins (they really should get out into the real world a lot more) at the Treasury published a pretty infographic on ways to save in 2017.
Lots of mentions of Isas – cash, stocks and shares, lifetime, help to buy and junior. Even a plug for Premium Bonds, though National Savings and Investments has since reduced the chances of bondholders winning most of the bigger prizes. But not a whisper about pensions, not even in a footnote or on the reverse of the infographic. Given it was meant to help savers ‘learn about Isas and other savings options’, it was a glaring omission.
Generous savings allowances
The government’s boosting of the Isa regime is one that financial planners and investors alike should welcome. The fact that a family of four can now shelter a maximum £48,256 in Isas in the tax year commencing April 6 – even more if the children are aged 16 or 17 – is more than generous. Indeed, I would say it is somewhat over the top. There will not be many households that will be able to take full advantage of the new contribution limits - £20,000 for adults and £4,128 for children.
It will also become increasingly useful to those currently in receipt of dividend income from investments or limited companies they have set up as a result of self-employment.
With the tax-free dividend allowance shrinking by £3,000 to £2,000 from April next year, it now makes sense for investors to hold as much of their long-term savings wealth as possible in Isas, by using future Isa allowances and a ‘bed and Isa’ to transfer shares into a tax-friendly wrapper (capital gains tax issues notwithstanding).
As financial planners, you know the score – plenty of opportunity to demonstrate your undoubted financial skills.
Also, the personal savings allowance of £1,000 – £500 for higher rate taxpayers – will push more people in favour of stocks and shares Isas than cash-based Isas where returns are miserable.
Supportive though the government has been to the Isa regime, I do fear it is creating a system in danger of becoming over complicated. The launch of the lifetime Isa and the slow birth of the innovative finance Isa add to the confusion: different limits for some types of Isa, bonuses for those drawn to an Isa in the hope of using it to fund the purchase of a first home.
At some stage the government will need to tackle Isa complexity and simplify what is on offer. If it does not, it could create a savings hydra that is tax-friendly on the surface, but difficult to tame. Remind you of where we are with pensions?
Rock on spring. May the Isas blossom.
Jeff Prestridge is personal finance editor of the Mail on Sunday
