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Winners & Losers

• Tax and inheritance
• Expected reprieve for ISA investment limits
• Some help for first time buyers
• Dear Prudence, won't you come out to play?
• Brown bribes for wavering voters

Tax and inheritance

The Chancellor has listened to the demands that he looks at the starting point for inheritance tax. However, by raising it from £263,000 to £275,000 (approximately 4.6%) he has paid lip service rather than made any real difference to the large number of middle class families whose homes have been drawn into the IHT net.

Gordon Brown made much of the fact that the IHT limit will rise to £300,000 in three years, pre-announcing the limits for the next couple of years. Yet by the time it reaches £300,000 it is quite likely that the corresponding rise in house prices are likely to have outstripped the increases.

In fact, in less than 12 years house price increases could make even the average UK homeowner liable for Inheritance Tax (IHT). Research from Key Retirement Solutions (KRS), a specialist IFA in the equity release and retirement planning market, also reveals that this problem could hit average homeowners in London (two years), the South East (four years) and the South West (seven years) much sooner if house price trends from over the past ten years continue.

Dean Mirfin, Business Development Director at Key Retirement Solutions commented, "Today's nominal increase in the IHT threshold and the governments promises of further increases in the future does very little to help homeowners. In fact, the new average threshold growth rate of 4.5% is considerably lower than the average growth rate over the last ten years of 5.8%. This could potentially see the value of the average UK homeowner's property push over them over the IHT threshold much sooner than the forecast 12 years. Unless serious consideration is given to the level at which this tax is charged, in future it will be the majority of estates which will be liable rather than the current minority."

What was also notable was the omission of clarification on the pre-owned assets charge. Clive Mackintosh, tax partner, PricewaterhouseCoopers, called on the Government to delay the introduction of the pre-owned assets charge. He said, "Despite coming into effect on 6 April, the Revenue has still not published the long-awaited detailed guidance as to how it believes the tax should work.

"The Revenue has promised detailed guidance which we have still not received and we don't know what impact this will have on our clients. I would like to see the introduction of the charge delayed for a year in order to give people time to understand what the impact of the legislation is in detail.

"The tax charge is designed to stop people avoiding Inheritance Tax by giving away assets they continue to enjoy, but it is unclear how this will work. Concerns have already been expressed that the tax impacts transactions back to 1986 and that the taxpayer will have to find the cash to pay what could be a hefty tax bill on assets from which they receive no income."

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Expected reprieve for ISA investment limits

After the savings and investments industries howls of disapproval the Chancellor has bowed to their protests and confirmed that the existing Individual Savings Account contributions limit of £7,000 per tax year will remain at least until 2010. He also dangled the prospect of recycling some more of our tax money back into our pockets through the Child Trust Fund by announcing a further consultation on possible additional payments into the CTF during secondary school ages.

Other changes didn't make it into the speech but came in the usual slab of paperwork that accompanies the Chancellor's performance. Under the proposals all investment schemes that carry Financial Services Authority authorization will count as qualifying investments for ISAs and CTFs.

The Government is extending the ISA and CTF qualifying investment rules to include all retail collective investment schemes authorised by the FSA, notably UCITS - Undertakings for Collective Investment in Transferable Securities (the unwieldy name given by the European Union (EU) to pan-European investment funds), provided they do not restrict savers ability to access their savings.

Deep within the page of Budget 2005 was further news: following the Sandler Review of the retail savings industry, the Chancellor has confirmed that the government will introduce a new 'Stakeholder' suite of simple, low cost, risk-controlled savings and investment products in April 2005.

The suite will include a deposit account and a medium term investment product - both of which will be available within ISAs - as well as a Child Trust Fund account and a revised Stakeholder pension. There is also a new advice regime, Basic Advice, which the FSA finalised in November 2004. The launch of the Stakeholder Suite will be supported by a £4 million programme to inform consumers.

Gordon Brown also announced that from May, the government will issue long term bonds with maturities for the first time in a generation of up to 50 years, "locking in low borrowing costs and simultaneously benefiting taxpayers and investors".

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Some help for first time buyers

First time home buyers were one of the Chancellor's focus groups for help. With effect from 17 March 2005 the stamp duty land tax threshold doubled, rising from £60,000 to £120,000. This will cost the Exchequer around £250 million in lost revenue (according to Treasury estimates). The Council of Mortgage Lenders' estimates suggest it will enable perhaps around 370,000 additional home-buyers each year to escape stamp duty.

However, only around a fifth of those who will benefit from the new exemption (78,000) are based in southern England, where affordability is worst. The exemption up to £120,000 helps around 62% of all those buying property up to £150,000 in the UK, but in Southern England the exemption helps only 43% of those buying property worth up to £150,000.

With average house prices across the UK now 150% higher than when the stamp duty threshold was last amended in 1993, the revised threshold is still below the £150,000 that would reflect a full index-linking to house price movements since Labour came into office. According to property website Rightmove only 15% of properties on the UK housing market are priced at less than £120,000.

Miles Shipside, Rightmove's commercial director added, "This change is likely to be seen as regionally divisive as it will help some people in regions like the North and Yorkshire & Humberside - and virtually no-one in London and the South East." He also believed it would act as a price depressant in some areas, saying, "There will be a difficult decision for those sellers priced between £120,000 and £130,000, representing 5% of the market - it seems that they will probably have to reduce their expectations to attract buyers below £120,000."

In addition to the change in the stamp duty threshold, the Chancellor also announced his intention to involve lenders in financing an extension of "Homebuy" equity loans which typically finance 25% of the purchase price - a shared equity scheme that will raise the numbers eligible for low cost homeownership schemes to 100,000 new homebuyers. Gordon Brown also said that, starting with nine pilot schemes across the country, the government will build new private homes in council estates.

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Dear Prudence, won't you come out to play?

Prudence was a Budget no-show. However, the Chancellor did briefly allude to what he described as the "prudent course" for Britain, claiming his Budget proposals involve a modest fiscal tightening. The budget marginally raises the probability of higher interest rates. Most significant in this regard is the support for the housing market.

In fact it was something of a celebratory Budget. Once again Gordon Brown had confounded critics of his growth forecasts. He was right and they were wrong, again. However, his critics have also been quick to point that he has consistently overestimated his tax revenues each year while blithely assuming that depressed revenues will bounce back to where he believes they should be in future years.

For example, the Treasury forecasts corporation tax receipts to rise by around 28% in 2005/6 (after 19% estimated growth in 2004/5). Although revenues were strong in January 2005, this forecast of further rapid growth is distinctly optimistic in relation to historic trends.

The Chancellor reckons he will meet his 'golden rule' with £6 billion to spare. Who cares outside the Westminster village? It was a self-imposed target anyway. What is more important is the fact that the Government will start the next economic cycle with a structural current budget deficit. Correcting this will require some combination of tax increases and lower public spending growth in the years ahead.

Overall, the Budget was broadly fiscally neutral, with modest tax cuts for families and first time buyers and increased benefits for pensioners offset by modest tax increases elsewhere, primarily through anti-avoidance measures and, in 2005/6, changes to the timing of North Sea taxation.

The Treasury stuck to its view that GDP growth will be around 3-3.5% in 2005 and 2.5-3% in 2006 and Gordon Brown trumpeted not only the fact that he expected Britain to show the fasted growth of any G7 country but also that the UK economy has been experiencing its longest period of growth since records began in 1701.

Much of the finance for the 'give-away' to families and pensioners was provided by running down the reserve by around £2 billion. Even so, the Chancellor was unable to hide the deterioration in the current budget for the present fiscal year; just three months ago, he forecast a shortfall of £12.5billion but in the Budget he raised the projection to £16.1 billion.

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Brown bribes for wavering voters

Help for "hard-working families" and bigger handouts for pensioners (who are probably poor by definition); you might be forgiven for thinking that Gordon Brown had gone to the Commons not with the customary red box but with a carpet bag full of used notes, dispensing largesse to people who may, just may, have been tempted to vote a different way come the general election that everybody is expecting.

In his 2004 Pre-Budget Report the Chancellor suggested there would be a £50 Council Tax refund to people over 65. In the weeks leading up to the Budget, Shadow Chancellor Oliver Letwin suggested the Conservatives would offer £150. Come Budget Day and Gordon Brown opts for what poker players would recognise as a re-raise over the top! He announced, among a package of pension pleasers, that each household containing someone over the age of 65 would qualify for £200 back.

Pensioners and those over 60 will also benefit from free local off-peak bus travel and any pensioner going into hospital will also continue to receive their state retirement pension entitlement and full entitlement to incapacity benefit, severe disablement allowance and income support.

Substantial investment in education was a crowd-pleaser to families who may be concerned about the quality of their kids' experience and learning at school and together with news that both the pensions credit and the child tax credit would rise in line with earnings all helped to underline the fact that the polling booth is just around the corner.