Money news, advice and predictions for savers and spenders.
By Jeremy Gates
In the old days, the Tories' return to Downing Street after a 13-year exile would have seen a surge in the FTSE-100 as fund managers and Britain's army of small investors - some 12 million people holding shares worth £167 billion - scented better times ahead.
Not this time, alas. Indeed, die-hard Thatcher fans who put their savings into equities and buy-to-let flats since those heady days of the 1980s might see themselves among the first victims of Westminster's new coalition which promises 'fairness' all round.
"If Capital Gains Tax (CGT) goes up to 50%, what is the point of investing in anything?", asked one furious correspondent on the Daily Telegraph website the day after Mr Cameron kissed hands.
I see his point. Since 2008, savers holding cash in banks and building societies have seen their income decimated by a Bank rate of 0.5% since March 2009, to ensure cheaper mortgages for over-borrowed homebuyers and avoid a flood of repossessions.
Now an early target for the 'austerity' coalition are savers who backed shares and bricks and mortar (second homes and buy to let flats) instead.
How clever of Alistair Darling to leave Capital Gains Tax (CGT) unchanged at 18% in his farewell Budget on March 24.
Now, in line with the Lib Dem's manifesto, CGT on profits made from the sale of non-business assets will rise sharply to "rates similar or close to those applied to income" - in other words, back to 40% or even 50% for higher earners.
This whopping tax increase is possibly being collected already: Lisa Macpherson at PKF Accountants thinks the emergency Budget, due within 50 days, could backdate the much higher rate to April 6, 2010.
The second part of the Government's attack is a drastic reduction of the annual CGT allowance - £10,100 per person for 2010/11, or £20,200 per couple, down to a figure which may be as low as £2,500 per person. That was a Lib Dem demand too.
Laith Khalaf, at financial advisor Hargreaves Lansdown, says: "This added tax on share profits makes the case for putting equities in an ISA or pension even stronger. In either of those, capital gains are still free of CGT."
Jason Hollands, director at fund manager F&C Investments, says: "Closing the differential rates between CGT and income tax should prompt a flurry of investors, particularly those on higher income tax rates, to urgently consider crystallising gains made on long-standing holdings ahead of the Budget.
"One strategy open to them will be to 'bed and ISA' these holdings, i.e. to sell them and repurchase within an Individual Savings Account, so that they utilise current annual CGT exemptions and incur any additional tax liability at the 18% rate, while future returns will be ringfenced from the taxman altogether.
"IFAs and tax advisers could have a very busy month ahead," he added.
Hollands warns investors to be wary of other potential changes in an emergency "austerity" Budget.
One obvious target is tax relief on pensions for higher earners, which the outgoing Labour administration has already scaled back, though this was delayed until the start of the 2011/12 tax year.
"There is a real possibility the new Government may bring this change forward, so those on high incomes planning to maximise their pension contributions in advance of the change may decide to err on the side of caution and do so before the Budget", says Hollands.
Few will shed many tears on buy-to-let landlords. But they have bought more than 1 million homes and boosted the private rented sector from 10% to 13% of the total number of households since the 1990s.
Ray Boulger, at mortgage broker John Charcol, says: "If buy-to-let investment becomes far less attractive, there will be many fewer homes available. The State can't afford to build homes for rental either, so life could get tougher for tenants.
"The Government should think carefully about the implications before pushing this one through."
The other 'rabbit' in the headlamps of our new masters is the Child Trust Fund (CTF)- Gordon Brown's so-called "savings pathway" launched in 2005 for all children born after September 1, 2002.
With Government vouchers promising at least £500 for each child by the age of seven, parents and relatives can add a further £1,200 a year to a tax-free savings pot.
More than 4 million CTFs have been opened so far, holding more than £2 billion which children get on their 18th birthday. Anybody saving £22.50p a month on top of the State vouchers, and getting a 4% per annum from a bank or building society or equities through a managed fund would have a pot of £7,964.70p at 18.
Although children who have already opened a CTF account will be allowed to keep it, the decision to drop it in all but the poorest households means the benefit will be short-lived.
Andrew Hagger, at Moneynet.co.uk, says: "From September 1, 2020, when first CTFs mature, a constant stream of 18-year olds will start adult life on a much sounder financial footing than the previous generation.
"Does it really make economic sense to wipe that out?"
Jason Hollands, a leading provider of CTFs held in share accounts at fund manager F&C, says: "The likelihood is that in due course no new CTFs will be issued, which is disappointing, but we do not expect top-ups of existing plans to be prevented.
"Parents and guardians with children currently eligible for the CTF should take advantage of this allowance while they can by topping up if they are in a position to do so."
"The outlook for CTFs remains uncertain. However, one glimmer of hope can be found in the coalition outline policy agreement, which refers to "reductions" in Child Trust Funds rather than their abolition."
Any parent sitting on a voucher for a qualifying child who hasn't opened a CTF so far should do so, before the next Budget.
The effect of another coalition policy, probably intended to be helpful, is unclear: Both Tories and Lib Dems want to scrap the rule which forces people to draw their pension at 75 to get an income for life from an insurance company.
That means more flexibility for savers, who may wish to pass their pension pot onto relatives after their death, subject to a tax charge.
But, as Annie Shaw at CashQuestions points out, this measure will cut the size of the total insurance company pension pot, which pays out to those who have to take pensions much earlier. Annuity rates, which fix pension income, could go even lower than current pathetic levels.
Shaw says: "The downside is that this leaves meagre returns for the healthy but less wealthy who need an even larger pot to secure a reasonable pension. The fact is that those who fail to survive long enough to get their money's worth pay for those who would otherwise outlive their savings."
As storm clouds gather over Europe, the coalition faces a hard road to economic salvation. All of us must batten down the hatches.
This week I sold a fund holding shares in small UK companies and put the money into index-linked National Savings Certificates, with an interest rate linked to the inflation rate for the next three years.
Maybe I should have grabbed the five-year option instead.
:: Information: Hargreaves Lansdown (0117 900 9000 and www.H-L.co.uk); F&C Asset Management (0800 136 420 and www.fandc.com).
Poundnotes
:: Building society savers who like a passbook probably get a poorer return on their cash, according to analysis by MoneyExpert.com, which claims passbook accounts pay an average rate of 0.99%-0.24% below the average on all instant access accounts. Some 55% of passbook accounts now pay less than 1%.
Pierre Williams, at MoneyExpert.com, says: "Many older savers like the security and certainty offered by a passbook with a savings account.
"But for banks and building societies, there is a cost in providing passbooks, and they prefer to deal over the Internet or phone. Unfortunately, it is savers who pay the price. Savers who favour passbooks really need to find the best deals.
:: Is bankruptcy always the best way out of debt, asks Neil Munroe at data specialists Equifax. Often, it clearly isn't.
"Many people don't realise that bankruptcy remains on a credit file for six years, even though actual bankrupt status only lasts a year", says Munroe.
"That means that even after they are no longer registered as bankrupt, individuals can still find it really difficult to get access to the most simple credit arrangements, such as mobile phone line rental or paying by instalments for key services like utilities and insurance."
Equifax is the first credit reference agency to make its £2 Statutory Credit Report available online and Mr Mustoe says those who use it to gain control of their finances and manage debts can avoid getting into desperate circumstances.
:: Spanish-owned Santander (owner of Abbey, Alliance & Leicester and Bradford & Bingley) is leading the charge to lower mortgage rates, with new two-year fixed-rate loans from 3.24%, with a £999 fee and a 70% LTV (loan to value) limit, alongside a range of high and low fee options for a series of trackers.
Santander branches' special offers for existing current account customers can save £1,095 for a limited period only.
:: Five million consumers spend more money than they earn, says Ann Robinson at price comparison site uSwitch.com, and nearly half use overdrafts to fund their lifestyles. Excluding mortgages, the average household debt is £9,000, rising to £18,722 if unsecured loans are taken into account.
"Consumers should pay serious attention to their spending habits", says Robinson. "Short term debt solutions may seem an efficient way to fund spending, but they can lead to severe long-term debt issues if not managed properly."
:: High five savers
Phone No Rate Account Period Deposit Interest paid
State Bank of India 0207 454 4315 5.00% (F) Hi Return Fixed Deposit Five Years £1,000 Yly
Barnsley BS 0845 120 0898 4.70% (F) Fixed Rate Bond Five Years (T) £100 Yly
Secure Trust Bank 0800 408 2020 3.25% 120 Day Notice Issue 1 120 Days £1,000 Quarterly
Barclays Bank 0800 494949 3.10% Golden ISA Issue 2 Instant £1 Mly
Manchester BS 0161 923 8015 3.01% Premier ISA Issue 6 90 Days £1,000 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 2.39% variable for term 65% £499 Yes
ING Direct (UK) 0845 603 8888 2.55% disc to 31/05/12 70% None
HSBC 0800 494999 2.99% to 31/08/12 70% £999 Yes
Norwich & Peterboro BS 0845 300 2522 3.15% for three years 75% £695 Yes
Saffron BS 0800 072 1100 3.49% for term 80% £495 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
