Why, Oh Why

by Barry Davys, Strathardle Asset Management

Why do we need a Government? Why don't we have five years without a Government and see how we get on? In the context of the next thousand years how much difference would it make to have five years "off". There is a VERY serious point to this. We would have five years without legislation, bureaucracy and change, which for the most part seems to be for the sake of change.

To illustrate, or perhaps prove the point look at the new pension legislation. The new laws DO give encouragement for people to save. The Government are already fiddling with the legislation to change the Pensions Act that was only introduced in December 2004.

In broad terms, the Act said that it was possible to pass on your pension fund, as a pension, to your children. The way the legislation was structured meant that there was NO Inheritance Tax to pay as the pension fund passed to your children. Within two generations children would have been inheriting pensions that would have completely removed the current pension shortfall for many. This could have been seen as forward thinking by the Government. Unfortunately, the Government has already committed to spending our tax now. The politicians making the decisions will also not be around in two generations time. So attempts are being made to impose some form of tax as the pension fund passes to the children. The good news is that the Inland Revenue have not yet found a way of doing this even after several attempts. As pensions are written under trust law I will be very surprised if they do find a way to tax the pension fund passing to a child.

If you have not already started to do so you really should look at how you can use the new pension rules that come into effect from April 2006. There are ways that your pension can help your business and there are great ways for your pension to help you. As from April 2006 it can be argued income tax and corporation tax become voluntary. This is because an individual can pay in 100% of salary and claim tax relief on the full contribution. An employer can pay up to £215,000 pa into a pension for an employee. Take for example a company with four shareholders/directors. It could pay in up to £860,000 (4 x £215,000) and claim back corporation tax relief.

One word of caution on putting a residential property into a pension. The Inland Revenue have just announced that the default position is you will be deemed to have use of the property for 52 weeks of the year unless you can prove otherwise. In other words, we will be guilty until proven innocent.

Which brings me to my final why. Why, when there are two lanes onto the Forth Road Bridge, no toll booths, and two lanes off the bridge do we get queues going South in the morning?