Smoke, Mirrors, IHT and Gordon's Golden Rule; the Political Parties Have Nailed Their Colours to the Mast over Tax. Neil Davidson, an Independent Financial Adviser at Wolver Hamptonbased FSC Investment Services Limited, Attempts to Sort the Wheat from the Chaff
Byline: Neil Davidson
Global warming or the recently passed conference season, either way there seems to be a lot of hot air around, with the three major parties just finishing their annual back slapping.
I feel it would be prudent (do I sound like Gordon Brown?) to look at some of the financial issues that some of the parties highlighted during their conferences.
The Conservatives say if they get in power they will raise the nil rate band (NRB) for Inheritance tax (IHT) to pounds 1 million.
However, Chancellor Alistair Darling yesterday sought to steal the Tories' thunder promising to cut inheritance tax while boosting investment in health and education.
Delivering his first Pre-Budget Report, Mr Darling said he would raise the inheritance tax threshold for couples to pounds 700,000, from the previous Labour level of pounds 300,000.
I think it was Roy Jenkins who said "IHT is only paid by people who hate their relatives more than they do the Government".
Planning to mitigate IHT does in itself generate a cost, but a few hundred pounds could save your estate and therefore the beneficiaries many thousands of pounds.
It is worth noting that the current exempt level of pounds 300,000 is not per couple, but rather a personal allowance and if it is not used you could lose it as many people do. My advice is to seek Independent financial advice sooner rather than later.
The Conservatives announced they would abolish stamp duty for first time buyers spending under pounds 250,000, this was probably in response to the news that the proportion of young adults who own their own home has plummeted.
According to official figures the number of 25 to 29-year-olds in 1993 who owned their own home was 60 per cent and this has fallen to 47 per cent.
I don't think reducing stamp duty will have much effect on these figures on its own - there would have to be a massive house building programme.
This Labour has pledged, and we can expect another three million homes by 2020 if they stick by this pledge. I feel a change of attitudes to owning property is needed similar to our European neighbours, but again for that to happen there has to be ample houses with affordable rent.
Whether this is offered by the state or private enterprise is debateable, I feel a combination of both is necessary. Until this can be sorted out, I feel sorry for young people and those trying to get on the housing market after, say, a divorce.
It's not only what they say at conference that's important, it can be the things they don't mention such as pensions and retirement and how this is going to be funded.
The parties in general seem to have taken their eye off how we will all pay for our retirement. Perhaps this has something to do with the fact that they have a scheme that the rest of us contribute over pounds 14 million a year into.
But for the rest of us there is the fact that we are living longer and the State is becoming less generous in payments towards providing what could be considered adequate pension income as the years pass.
So if we rule out euthanasia at retirement as an option, we are left with the fact that we need to have a nest egg to draw from in retirement.
But how do we achieve this?
The traditional way is to place a percentage of your monthly income into a personal pension scheme, tax relief is added to this, and this is then placed into various forms of investment that grow until you reach your chosen retirement age.
At the chosen retirement date you can take up to 25 per cent of the fund as tax free cash. …