What the Queen's speech might mean for investors
This week saw the Queen’s Speech, at the State Opening of Parliament, which set out the recently elected Conservative Government’s agenda for legislation during this parliament. The event was accompanied by all the pomp and ceremony that we do so well in the United Kingdom.
Having confounded the pre-election opinion polls, which consistently pointed to another hung parliament requiring either another coalition or a period of minority rule, in securing an overall Conservative majority Prime Minister David Cameron has found himself in the unexpected position where none of the policy commitments made in his manifesto need to be traded away in discussions with other political parties. Of course, with a small majority, the Government will need to be mindful of potential revolts on their own backbenches but for now there is little room to wriggle out of commitments made on the campaign trail.
Amongst the key pieces of legislation announced in the Queen’s speech some of those with potential implications for investors worth drawing out are:
- A referendum on the UK’s membership of the European Union, to be held by the end of 2017. This will clearly be a momentous decision for the UK public and already businesses have begun to air their views on either side of the debate with the likes of Airbus and Deutsche Bank warning against an exit, and engineering giant JCB speaking in favour of it – expect much more on this over the coming months. On the precise timing of the referendum the Government is being pulled two ways. A prolonged period of uncertainty will likely unnerve many businesses and international investors and may result in investment decisions being held back. However, others argue the Government should not be rushed into an early vote, as it will need time to negotiate meaningful reforms so that it can persuade the public to stay-in the EU.
- Finance Bill. This will see the Government make good on a campaign promise of a “tax lock”, to legally bind it not to raise the rates of income tax, national insurance and VAT until 2020. While many will welcome anything that appears to put the brake on tax rises, there are clearly risks of a Government tying its hands should unforeseen economic developments put pressure on tax revenues and there are of course other ways it could seek to raise tax without changing the headline rates, such as hiking capital gains tax, inheritance tax or tampering with pension reliefs. The finance bill will also see the annual tax-free allowance increase to £12,500 by 2020.
- Also expected in the Finance Bill are changes to Inheritance Tax. The Conservative manifesto committed the party to “take the family home out of tax for all but the richest by increasing the effective Inheritance Tax threshold for married couples and civil partner to £1 million, with a new transferable residence allowance of £175,000 per person.” However, as the saying goes, ‘there’s no such thing as a free lunch’, and the sting in the tale for wealthier individual is that the IHT policy “will be paid for by reducing tax relief on pension contributions for people earning more than £150,000” many of whom are also likely to be in the category deemed ineligible for the new transferable residence allowance. For more information on Inheritance Tax planning, download our free guide here.
- Pension reliefs to be reduced for high earners. Although not spelled out specifically in the Queen’s Speech, changes to the pension allowances were in the Conservative manifesto and we therefore expect to hear more in the Budget on 8 July. Currently investor receive pension tax relief at their marginal rate of income tax, which means for high earners up to 45%, with a maximum annual gross contribution of £40,000 per annum. The proposed changes set out by the Conservatives to fund their Inheritance Tax reforms will see the level of the annual pension contribution allowance tapered down for those earning more than £150,000 per annum so that anyone earning £210,000 or more will have annual gross pension allowance of just £10,000. In the meantime those likely to be impacted and who are not at risk of breaching the lifetime pension allowance might consider bringing forward planned pension contributions ahead of the Budget as well as considering mopping up unutilised pension allowances from the previous three years under pension carry forward rules. While there is no guarantee that any changes won’t be back-dated to the start of the tax year, a retrospective move would be unprecedented. To discuss your financial planning needs, contact us on 020 3553 3977 for a free consultation with one of our local advisers.
- A Scottish slant on financial planning? Greater devolution will see English cities gain more power over policing, transport, housing and planning while Scotland will get even greater autonomy over tax and wealth, including the ability to set its own rates of income tax. Financial planning decisions for Scottish based investors could therefore diverge from those in the rest of the UK over time, so investors based in Scotland but not currently using advisers with an on-the-ground presence in Scotland might want to talk to our teams in Edinburgh and Glasgow.
- Enterprise Bill. This will aim to cut red tape on the UK businesses and improve the business rates system; moves which the Government claims will save companies £10 billion. These measures should prove particularly supportive to small and medium sized enterprises.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.
Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change.
This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.