Personal Finance: Steal a march on a winter Budget

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The Independent Online
THECALENDAR has been rearranged. Halloween, Guy Fawkes, the Lord Mayor's Show and then the Budget.

On 30 November we will see the first combined Budget - the Government's view of how it will spend the money and how it will collect it.

The tax year remains an April to April affair, so there should be plenty of notice of tax changes, unless the Government rewrites the rules completely.

The Government is faced with sets of diametrically opposed objectives.

It wants to scrape funds into its own coffers, but a headlong policy to extract taxpayers' money would fly in the face of more subtle policy goals.

On the pensions front fears that the Government could disallow higher-rate tax relief, as it did long ago for mortgage tax relief, or that it might stop people swapping some of their pension for a tax-free lump sum, are not taken too seriously by the pensions trade body.

The National Association of Pension Funds hears the loud protests from the DSS quarter that the Government can no longer afford to pay pensions, and people must be persuaded of not just the wisdom but the necessity of saving for their own pensions during their working lives.

So the NAPF is concentrating on trying to get the earnings cap made more generous. When first introduced in 1989, the cap limited pension benefits to pounds 60,000 of salary. This has risen in line with prices to pounds 75,000. But the NAPF says it should be raised in line with earnings - ie, faster - or it will start encroaching on 'ordinary' workers.

It also believes that more and more employers with high-flyers caught by the cap are offering unfunded, unapproved side orders to their capped pensions. These are really no more than a promise that extra money will be paid over at retirement, and they rely on the goodwill and solvency of the company a long way hence.

This flies in the face of all the reforms that the Goode Committee is attempting to put in place in the wake of the Maxwell scandal.

Trying to work up sympathy for capped employees, however, is even more difficult than shedding tears for straitened Lloyd's names.

The same cannot be said for homeowners who have been through the mincer with a nasty bout of sky-high interest rates and plunging property values.

You might think here that the Government would want to use the housing market as one of its prongs to prod the economy into more active life.

But the Treasury is looking for savings, and waiting for the pounds 30,000 limit for mortgage tax relief to be whittled away by inflation could be a long, slow business.

The long-term relief that lasts as long as the mortgage could always be replaced by a time-limited scheme which, for instance, gave tax relief for the first years of a mortgage for first-time buyers.

The difficulty of defining a first-time buyer might make this scheme unworkable. A married couple where one partner had a previous mortgage but the other had not, or the woman who has had a mortgage in her single status and presents herself in her married name as mortgage- free, could create horrible problems for lenders to administer.

The building societies are already complaining that they have to do quite enough admin work for the Government.

The Government got away with cutting higher-rate mortgage tax relief, and expects the squeeze down to 20 per cent next year to go down without a hue and cry.

If it manages to bring down interest rates, thiscould just be the time to sweep away mortgage interest relief at source, Miras, which benefits homeowners but not those who rent their homes.

But borrowers should not expect mortgage rates to come down much further as societies worry about cutting the interest rates paid to savers.

The perky stock market, which hit a new high on Friday, in part reflects savers' flight from low deposit rates.

So ahead of the Budget what could you be doing? The obvious answers are to bring forward any pension investment, and sorting out a mortgage if you are about to move.

As an added money- saving move, try paying your gas and electricity companies some money on account. Most will credit payments ahead of the imposition of VAT in April, which will give you tax-free fuel until the payment runs out.

Acanny Chancellor might just snap this loophole shut.

THIS is Make a Will Week - a blatant attempt by the Law Society to drum up business for solicitors.

But in spite of the commercial motive, it is still an excellent idea.

Anyone with children needs to think about who will care for them if disaster strikes.

The intestacy laws lay down strict rules about who gets what if there is no will. For instance, a married person with children will see the first pounds 75,000 (rising to pounds 125,000 at the end of the year) going to the spouse, with the rest shared with the children.

Unmarried couples with entangled finances really do need to cut each other into a death wish, or they will be cut out altogether.

A will only last as long as your relationship. So splitting up with a partner will probably mean redrawing you will. While marriage automatically voids any old wills, divorce does not.

Wills are a delightful opportunity to be pulling the strings and do just as you please. Ian Fleming, the creator of James Bond, left four friends pounds 500 each with an instruction to spend it within a year on 'some extravagance'.

Families, however, can always get together after you have gone and rewrite a will to suit themselves.

But if the Government's plight touches your heart, you could leave it a little something - like the former mayor of Altrincham, Edward Horley, who requested that a lemon was delivered to the Inland Revenue after his death with a note saying 'now sqeeze this'.

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