The firm also proposes simplification to the system of allowances and reliefs. They argue it should be possible to eliminate much of the complexity which results in the use of trusts to circumvent tax law. A review could have knock-on beneficial effects on Capital Gains Tax and on Pension Taxation on death.
Maintaining ISA Simplicity
ISAs are simple; by and large people understand them well. However there are restrictions, most notably the ban on saving into more than one ISA in one tax year. This restriction stifles competition and can cause problems for investors, for example someone who has already contributed to a cash ISA and who then wants to save in a Help to Buy ISA.
Over the weekend, speculation has also emerged of a possible mansion tax. This could be levied by either central government or local authorities, for example as an extension to the council tax bands and charges.
In McPhail’s opinion, “A mansion tax is superficially attractive but difficult to implement without some very unpopular consequences. Many elderly homeowners are asset rich but cash poor. Imposing an annual charge could create serious cash-flow issues. In theory the charge could be introduced with a deferral mechanism, with the levy eventually being picked up from their estate. The Mansion Tax could stimulate more property sales as well as increase demand for equity release”
What investors should do now
McPhail continues: “Notwithstanding current speculation of possible tax raids in the Budget, this isn’t the moment to hit the panic button. It always makes sense to take advantage of all allowances and exemptions ahead of a Budget and indeed the tax year end. So use your ISA and pension contribution allowances as much as you are able, invest for the long term where you can; use up capital gains tax exemptions ahead of the tax year end.”