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Sunday, 20 April 2014

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Seasonal confusion but no giveaways from Chancellor

The confusingly named Autumn Statement is taking place this year on December 5. I rather suspect that most of us think we are well into winter by now but perhaps it isn’t just the garden where the seasons are confused.

This is one of the main events of the financial year when the Chancellor gives details of tax and spending proposals. In the past it has been known as the pre-budget report or as an autumn mini-budget but, either way, it is an opportunity for the Chancellor to affect our financial wellbeing pretty directly.

He is likely to announce changes to benefits and other spending measures but we can also expect some tax changes.

The big question is what exactly will he do and should you be taking any action now before he does it?

One of the differences of having a coalition government is that quite a bit of the pre-announcement negotiations take place in public. In the end the result is likely to be a compromise with both parties getting some of what they want and avoiding those things they most dislike.

In this case the Chancellor is not likely to have much money to play with. The recent disappointing figures for October’s tax receipts may have sounded as if they didn’t matter to the man on the street but the reality is that there are going to be no giveaways this time round.

We will certainly hear much about tax avoidance by multinational companies – both parties can agree on that even if it isn’t clear what they are going to do.

The Liberal Democrats want a so-called mansion tax on properties worth more than £2m and are negotiating hard for that. The Chancellor seems to have set his heart against that, however, and I doubt if we will see it this time round. We may see a tightening of some inheritance tax reliefs on tenanted agricultural land (that would be significant in Cumbria) or possibly on those shares which are quoted on the AIM market. Both such measures have been talked about and are thought to be under active consideration.

Perhaps the most likely tip for a major tax change, however, would be the abolition of higher rate income tax relief on pension payments. This would be a major tax rise and there would certainly be much opposition but it has been touted for years.

So should all higher rate taxpayers rush out and stuff money into pensions before December 5?

Well, no. First of all it may not happen – it has been predicted before without any change. Secondly, pensions are only one form of long-term saving and additional premiums should only be paid after taking advice relevant to your own circumstances.

Nevertheless, if you are planning to make further contributions to your pension in the near future then it would seem sensible to do it before December 5 rather than fairly shortly afterwards. It could mean tax relief at 40 per cent rather than at 20 per cent.

If you would like further information or tax planning advice email moneytalk@armstrongwatson.co.uk or call freephone 0800 195 2161.

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