Brown goes for breath of fresh air - but the pension party ends before it began
The pre-Budget report played the green card but the Chancellor dealt a bad hand to financial providers
Sunday 10 December 2006
Much of the colour in this year's pre-Budget report (PBR) came from the catchline that Brown was going green at the expense of blue.
Last Wednesday's decision by Gordon Brown to back environmental issues such as stamp duty relief on "carbon-free" homes was widely seen as encroaching on political territory recently occupied by the Conservatives.
Yet the grey area of pensions policy also contained plenty of interest for the financial services industry and consumers, as the Chancellor moved to clamp down on policies only introduced in April. The backtracking, though, was not on the scale of last year's PBR, when Mr Brown junked plans to allow exotic investments such as art and vintage cars to form part of a self-invested personal pension (Sipp).
His big target was boosting education - £36bn to spend on state schools - and skills levels. But the Chancellor was also criticised for what he didn't say. There was nothing on help for the elderly on low incomes, or any changes to the way in which inheritance tax (IHT) and stamp duty are calculated on property to spare the less well-off from being caught by tax thresholds.
Here's your guide to the key parts of the PBR and what it means for your cash.
A goer for greens
There will be no stamp duty to pay on new properties if they qualify as "zero carbon-emitting" homes.
Although more details are to be released this week, such houses will need to be super-efficient in their energy conservation. This is likely to involve the highest levels of cavity insulation and installation of "green"' energy supplies such as solar panels and mini wind turbines on roofs. Only 200 UK homes currently qualify.
Other carbon-emitting activities were penalised. Air passenger duty, the tax paid by travellers for leaving airports, is to double from 1 February. For low-cost European short-haul flights, it will be £10; on an inter-continental route, up to £80. And after a three-year freeze, petrol duty rose by 1.25p in the litre.
Two policies unveiled in April in a bid to simplify retirement saving look set to be abolished after the Chancellor decided they were not being used appropriately.
The alternatively secured private pension (ASP) - originally planned as an alternative to the compulsory income for life (annuity) once you reach 75 - had been a special concession to a tiny Christian sect. But its adoption by financial advisers for non-religious clients - because the ASP lets you pass on part of your pension pot, though with a 40 per cent IHT charge - prompted an urgent review.
Last week the Chancellor confirmed there will now be a tax penalty of up to 70 per cent on any pot passed on to dependants. This would be punitive enough to put off most people, said advisers upset that a new policy is being pulled out from under their clients' feet.
Mr Brown also looks set to stymie cut-price life cover bought via a pension fund. Under April's rule changes, savers could buy large amounts of cover - known as pension term assurance (PTA) - from their pension provider and earn tax relief on it. However, the Chancellor said the change - taken up by tens of thousands of savers - had "undermined the principles" of pensions reform designed simply to get more people to save than before.
PTA is now to be reviewed but life firms are preparing for the worst. Friends Provident has pulled its PTA cover from the market already and others are weighing up their options. "This is yet another U-turn from a government that doesn't seem to understand the unintended consequen- ces of legislation that came into force only eight months ago," says Jon Briggs of independent financial adviser Hargreaves Lansdown.
Anyone who took advantage of this tax relief before last Wednesday will not be affected. But those whose policies are in the pipeline "will not get tax relief beyond next April", adds Mr Briggs.
Kids are all right
Child benefit will be paid for unborn babies from 2009. It could leave expectant mothers up to £200 better off by the time of their baby's arrival, said Mr Brown.
Mr Brown put the kibosh on the way in which some self-employed workers earn a living via dividends instead of a salary - avoiding income tax and national insurance - through specially set up "managed service companies". Some people have used these arrangements for a short time before going to work somewhere else, making it impossible to work out their proper tax position.
Everyone will now pay income tax and national insurance on dividends from these companies.
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