December 6th is celebrated in many countries as St Nicholas' Day. In the Netherlands, children traditionally leave their shoes out for St Nicholas' annual visit, with the well-behaved children receiving presents in return for food left for St Nicholas' horses. Naughty children however, wake up to find a piece of coal in their shoe.
In the UK, we had the pleasure of celebrating December 6th with the Chancellor’s Pre-Budget Report. He presented two developments that will have significant impact for the UK financial services industry: ISAs and ASPs.
So how badly behaved have we been? Well, we’ve been good enough to be rewarded with the confirmation that the ISA regime is here to stay, although not quite good enough to see a definite rise in the annual ISA allowance, which has been £7,000 since 1999. However, the Treasury statement that it is guaranteeing an annual limit of “at least £7,000” gives us some hope yet.
He also announced that the £124bn held in cash ISAs can now be transferred into stocks and shares ISAs, so clients may wish to make a new year’s resolution to review their complete ISA portfolios. This presents a huge opportunity for financial advisers to provide advice to clients on where best to invest their money and how to manage it over the long term.
Whereas the majority of this cash is likely to be from unadvised sales of high street products, fund platforms now look set to be the winners here rather than building societies and high street banks. By using platforms, advisers can access the investment options and e-business tools that they need to create portfolios to suit their clients’ investment needs.
Other broadly positive developments include rolling PEPs into the ISA wrapper, removing the maxi/mini distinction within ISAs and allowing child trust funds to roll over into ISAs on maturity.
However, to the huge disappointment of most of us, our retirement planning behaviour has obviously not been well-regarded. The Chancellor’s gift to ASPs was somewhat more coal-like, with a tax charge of up to 70% for transfer lump sum death benefits that will now be treated as unauthorised payments, with inheritance tax also to pay on the net remaining fund. In addition, a minimum income was introduced but the maximum income that can be taken was increased.
Those in ASP already, or planning to do so, will need to consider revisiting their financial adviser in due course to reassess the impact of the changes on their own circumstances.
So we have been presented with a mixed bag of gifts. While the full impact on individual clients is now to be assessed, the Chancellor has once again clearly underlined the need for advice.
Colin Jelley is head of tax and financial planning at Skandia.
The views expressed are those of the author and not those of the company he represents.IFAonline
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