Personal Finance: Ways to beat the Budget
Sunday 14 November 1993
Finding ways to dodge some of the more punitive aspects of the Budget has become almost a national sport.
Filling up the car with petrol and stocking up on alcohol and cigarettes are basic tax dodger's tactics.
The more sophisticated graduate from taking advantage of the sure-fire financial manoeuvres, to predicting what is likely to come up and acting accordingly.
The most notable Budget tax coup for the nifty was the leak over the ending of life assurance premium relief in the 1984 Budget. Those who rushed out ahead of the Budget to buy 10-year endowment policies to take advantage of the tax relief have not had a sparkling return for their trouble.
Those policies will start maturing in February and March. Saving small sums may not have been too painful, so any lump sum that lands in your lap seems like a real gain. But colder analysis may put a different complexion on things.
The old adage about never investing just for the tax relief seems hard to follow when there is a gift horse baring its teeth.
So what about this year's Budget ?
Firstly, there are quite a few hangovers from Norman Lamont's last Budget. Tax relief on mortgage interest is to be cut from 25 to 20 per cent, and the tax relief on married couples and the additional personal allowance for single parents will also be restricted to the basic 20 per cent tax band.
This has raised speculation that tax relief for pensions, which is still available at 25 and 40 per cent, looks suspiciously out of line.
But there is a problem here, as restricting the relief would cut across the grain of persuading people to stop thinking they can rely on the state and encouraging them to save as much as possible for themselves.
It is a matter of where the line is drawn. There is already a ceiling of pounds 75,000 on earnings eligible for company pension tax relief. Beyond that, people are deemed well-off enough to save up for a luxury old age out of taxed income rather than relying on state subsidy on their savings - which is what tax relief on pensions amounts to. In fact, there is a double subsidy - tax relief and the tax privileges of the pension funds.
Whether there is action on the basic pension payment or AVCs (additional voluntary contributions) - extra payments made to boost basic pensions entitlement - will make little difference.
What it comes down to is that pensions are worth doing under current rules, because the boost from the state more than makes up for the lack of flexibility. So why not put as much as you can afford into pensions ahead of this Budget, rather than waiting for the end of the tax year - and you probably won't regret it in the long run whatever the contents of the Budget.
The other pre-Budget action that seems worthwhile is paying some extra cash into your gas and electricity bills. Pre-payment of bills before April will escape VAT as long as you are careful to specify that it is a pre-payment.
A TWO-TIER property market seems to have developed in the South-east.
Looking at it from a buyer's point of view, at first sight there appears to be a desert. On closer inspection the thin, estate agents' lists are littered with overpriced and not terribly attractive properties that have often been languishing on the lists for months and months.
Meanwhile, there is a feverish market in attractive reasonably priced properties that may not even make it to the printed lists as buyers rev up for contract races.
Buyers who bought at the height of the market either cannot stomach making a loss or cannot contemplate selling because they are trapped by negative equity and have no cash to dig themselves out of the hole.
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