Don't be a slave to the Budget

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The Independent Online
There are just 10 days until Gordon Brown's first Budget, which suggests that anyone looking to dodge his tax thunderbolts has no time to lose. Financial firms have come out with the usual rash of "buy while you can" tips, PEPs and pensions in particular. But by and large I'm in the "do nothing ... wait and see" school.

What we can be pretty sure of is that Mr Brown will abolish tax relief on private medical insurance for the over-60s and impose some sort of windfall tax on the privatised utilities.

I would be very surprised if medical insurance policies taken out before the Budget escaped the knife, and I am pleased not to have seen any claims from insurers suggesting otherwise.

Utility shares have been in the shadow of the windfall tax for some time, and when it is announced it is possible the shares of some of the firms will bounce back, assuming they are seen to have got off lightly. So sell now if you were going to sell anyway, but don't assume you are getting out just before a crash.

Tips to take out PEPs or put money into pensions before the Budget are based on speculation that the Chancellor plans to reduce the tax privileges that these products enjoy or even, in the case of PEPs, abolish the tax shelter. I doubt he will abolish PEPs - previously, Labour has said it will retain them - but he may cap the total amount that individuals can invest over the years and/or fiddle with their tax breaks. However,the sort of figures bandied about for any cap are unlikely to affect people with anything other than an armful of PEPs, so most savers can sleep easy.

The Chancellor may cut the tax credit - the amount of income tax PEP investors can reclaim - but this would almost certainly affect existing PEPs too, in which case there would be no benefit in getting in now. In fact, a cut in the tax credit might knock shares off their over-high pedestal - another reason for holding fire.

The financial tipsters would have us believe that pensions could be hit from a number of angles - restricting upfront tax relief to the basic rate, abolishing the tax-free lump sum that many pension plan holders are offered when they retire - as well as on the tax credit. Higher-rate taxpayers are being advised to bring forward planned pension contributions to beat the first, people close to retirement are being advised to retire now to beat the second. Both tips might seem sensible, but beware of extra charges. I am also reticent about advocating widespread extra investment when so much of the world of pensions needs an overhaul.

Tips to exploit the relatively generous inheritance and capital gains tax breaks may prove more worth while. But both areas are complicated and may well require advice.