Tuesday, 29 November 2011

Autumn Statement 2011

How the Statement affects investments
With little in the way of unexpected news within the Chancellor’s Autumn Statement it was perhaps unsurprising that UK equity markets reversed earlier gains to fall back into negative territory. 

It remains our view that UK equity markets remain oversold and desperate for good news which would provide a catalyst for positive sentiment towards equities. Although the statement did not provide much in the way of good news neither were there any nasty surprises.

The Chancellor claimed that the UK will avoid recession and perhaps this deflected the markets away from further falls given that he admitted the UK economy was a little off course. He confirmed the debt challenge is greater than anticipated on the basis that the boom was bigger, the bust deeper and that the effects will last longer. Despite these comments he confirmed that the OBR has said that the UK will meet its austerity targets. However, the debt to GDP ratio will peak at 78% in 2014 – much higher than expected. The Chancellor is determined to keep interest rates lower for longer and on the face of it this seems likely. 

Bankers will be unhappy at the increased bank levy but the wider financial sector will be pleased to note there is absolutely no intention to agree to the proposed financial transaction tax which could feasibly make the UK less attractive to investors. 

With little in the way of news that had not already been flagged, investors will once again turn towards hope that eurozone policy makers will finally take decisive action to tackle their debt crisis. Investors will also look towards the United States for US non-farm pay rolls and US sales season figures which will be the main focus of attention.

We continue to prefer solid companies with good balance sheets and good overseas earnings which will prove defensive during any weakness but provide significant upside on any long awaited positive news.  ANGUS KERR, DIVISIONAL DIRECTOR - INVESTMENT MANAGEMENT, GLASGOW OFFICE

How the statement affects pensions and inheritance tax
Whilst it will cause disappointment that entitlement to the Basic State Pension would rise to 67 and take effect eight years earlier in 2026, there has to be huge relief that any tinkering with pensions, be it with contribution levels or amounts of tax relief have been thankfully averted.

From April 2012, anyone investing up to £100,000 in a new start-up business will be eligible for income tax relief of 50%.

In 2012, any tax on capital gains invested in such businesses will also be waived, for one year only.

In addition to previously announced enhancements, this means that investors of up to £100k in an Enterprise Investment Scheme would benefit from:
i)   50% income tax relief (irrespective of what their own personal rate of tax is)
ii)  waiving of any CGT due for reinvested proceeds into scheme up (not deferred as before)
iii) no CGT on sale proceeds from EIS
iv) IHT exemption after two years

Providing that suitable schemes can be found, it could well be that an EIS becomes the vehicle of choice in the next tax year, for all types of investor, including the elderly looking to mitigate Inheritance Tax and those preferring not to direct funds into pensions, but still wishing to benefit from high tax relief and access to proceeds far sooner. This development will be well received from investors and the industry alike.  SIMON BLOWEY, DIVISIONAL DIRECTOR - FINANCIAL PLANNING, LONDON OFFICE

The opinions expressed in this document do not necessarily represent the views held throughout Brewin Dolphin Ltd. The value of the tax benefits depends on your own personal circumstances and all tax legislation is subject to possible change. The value of your investment may fall and you may get back less than you invested. EIS are high risk investments, no investment or service is suitable in all cases and if you have any doubts you should seek the advice of a Qualified Investment Adviser.

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