Key for the government today was to deliver the message that they would restore economic stability and respect financial institutions and markets welcomed the OBR affirming the Budget. With the 2022 Budget fresh in investors’ minds, bond yields were being closely watched, and they are falling, which is good news - these are the main gauge of what the government has to pay to borrow in the debt markets.
More good news for the markets is that the OBR forecasts that real GDP will be 1.1% this year, and this is expected to rise to 2% next year. This has already been demonstrated with the domestic focussed FTSE250 in positive territory, while the overseas focussed FTSE100 is in negative territory.
The Chancellor is retaining the Bank of England MPC’s target 2% inflation, and CPI is expected to fall to 2% by 2029.
Capital Gains Tax (CGT) rate rises were not as high as feared, rising from 20% to 24% (and 10% to 18%) and remains lower than income tax rates. Last year, CGT raised £14.4BN for the Treasury, but many investors, fearing much higher rates, have crystallised gains ahead of these changes and so we can expect a significantly higher contribution from CGT to the Treasury in this tax year.
One surprise is that defined contribution pensions will be liable for Inheritance Tax. UK SIPPs are estimated to have a value of £750BN and so the tax receipts from these are significant, and a blow to investors who use them for tax planning. Consequently, as well as tax receipts from IHT, the Treasury is likely to see an increase in the tax on pension drawings as the IHT exempt attraction and discipline of passing on this asset ‘untouched’ has been removed. A welcome relief is that the tax free cash that investors can draw, remains available.
Anything up to £1m on agricultural or business assets will be free from IHT, but after that there will be an effective rate of 20%. Companies who are listed on AIM who qualify for business property relief are rallying a little, as the changes are not as bad as feared, which is in part due to the Business Rates being limited to 50%, rather than the initially trailed 100%.
For further information on how your wealth might be affected by these changes, please contact us here.
