Pre Budget Report - What's the Effect on UK Wealth Management?

Stephen Harris

7 December 2006

The UK Chancellor delivered his Pre-Budget Report yesterday. S what's in the small print for the UK's wealth management industry? Under the alternatively secured pension rules, it was going to be possible for an individual never to touch their pension fund assets and then pass on the whole fund in their will. Under new proposals announced yesterday it will become compulsory to take an income of at least 65 per cent per year of what would be a full annuity pension, and any assets that are left in the fund to be passed on in a legacy will now be subject to a tax rate of up to 70 per cent. Tim Gregory, wealth management partner at UK accountants Saffery Champness said: “This will be a blow to the pensions industry and also to many people who were beginning to think about putting their trust in pensions again. It will do nothing to encourage people to save for their retirement, which is odd since that seems to be one of the government's objectives. It is also bizarre that such a high rate of tax should be imposed, and we shall have to wait for the details to see how this will work.” Individual savings accounts have been the subject of recurring renewal, and it has now been confirmed that they will continue to be available permanently. Beyond 2010, the maximum investment will be at least the current £7,000 per year. Richard Wastcoat, managing director at Fidelity said: “In addition to ISAs being made permanent, the changes also include the removal of the distinction between mini and maxi ISAs, which we also welcome. This means that investors putting £1,000 into a cash ISA with one provider can now put up to £6,000 in an equity ISA with another provider in the same year. Another change is the ability for investors to roll over legacy cash ISAs into equity ISAs without exceeding their annual limit – a change which has been met very positively by advisors." The UK government will also scrap stamp duty levied on non-resident exchange traded funds. This is expected to boost London’s ETF market significantly by making it far easier for international ETF providers to issue their products on the London Stock Exchange. Clara Furse, chief executive of the LSE said: “This is excellent news for London’s investment community. While growth in ETF activity in London over the last two years has been very strong, the levying of stamp duty on non-resident ETFs has deterred new product providers from entering the market, limiting the range of ETFs available in the UK. “We are very pleased that the government will put London’s ETF market on a more equal footing with other European markets where ETF trading volumes are currently up to four times as high as our own." The Society of Trust and Estate Practitioners welcomed yesterday's report, and specifically the proposal to introduce an anti-avoidance rule for capital losses arising to individuals and trustees. STEP also welcomed the consultation on the offshore funds regime and multi-tiered funds. But the society was critical that, in spite of the ongoing review, there was nothing mentioned in the report on domicile and residence. John Riches, STEP deputy chairman, said: “We will be looking at the legislation that results from to make sure that it does not catch innocent transactions. We support the decision to tie up artificial CGT losses but await further clarification on how these anti-avoidance rules will be applied in practice”.