***Want to put a second home in your pension? Think again
***The Chancellor’s muddle-headed move on oil prices
***RECOMMENDED ARTICLES: What’s really driving the soaring gold price?… Where to next for UK and US property?…
It’s just four months until pensions A-day, so you’d better get yourself organised for the plethora of investment opportunities it’ll open up.
Just think – you can put your pension into fine wines, art and antiques, or of course, residential property.
At least, that’s what everyone in the pensions industry and the financial media thought – until the Chancellor dropped his Pre-Budget Bombshell.
Headlines such as “Buy a holiday home at a 40% discount!” have been screaming from the front pages ever since the Government announced plans to allow a wider range of investments to be put into Self Invested Personal Pensions (Sipps).
But in the Pre-Budget Report yesterday, the Treasury put out a statement, barely mentioned by Gordon Brown in his speech, to say that Sipps “would be prohibited from obtaining tax advantages when investing in residential property and certain other assets, such as fine wines, from 6 April 2006.”
That’s right. All those people who’d been gearing themselves up for the property bubble to take flight again in April, as legions of investors put their money into second homes, have had their hopes crushed by a single sentence from Mr Brown.
The Chancellor didn’t even have the good grace to apologise. In fact, as if to add insult to injury, he described the move to do away with tax relief on residential property bought through Sipps as one of several “anti-avoidance and fraud measures”.
Others had a more accurate description for the move.
“Gordon Brown has made an enormous U-turn on Sipps that has wasted hours of professional time. An entire industry has been set up to deal with property-based Sipps and now it’s all been canned,” said Jerome Melcer, actuarial director at BDO Stoy Hayward.
So much for re-inflating the housing bubble.
But of course, what the Chancellor takes away with one hand, he gives with the other. The Government is to consult on a “planning gain supplement”.
Despite its name, the only thing Mr Brown is supplementing is the Government’s coffers. This is a tax on the value that land gains when planning permission is granted.
This has been tried before, and as various commentators, including the Royal Institution of Chartered Surveyors (Rics), have pointed out, it doesn’t work.
It essentially makes the land market, which is not the most liquid market at the best of times, grind to a standstill. Developers don’t want to pay the tax, so they just sit on their land bank until a new government comes in and scraps the whole misguided idea.
If developers aren’t seeking planning permission, houses aren’t being built. So the Government’s much-vaunted aim of lowering prices for “young couples” and increasing the number of homes being built is being directly attacked by the Treasury. “The decision shows a fundamental misunderstanding of how land markets work,” said Rics.
The Chancellor also demonstrated a fundamental misunderstanding of the way other markets work too.
He pinned the blame for the UK’s weak economic growth on rising oil prices. As expected, he finally reined in his estimate for the UK’s economic growth this year back to 1.75%, half of his original forecast for 3% to 3.5% growth.
So if high oil prices were to blame for the “unexpected” slowdown, you’d think he might want to push prices lower. But no.
The Chancellor needs to raise money, but the chances of him admitting this or doing it in a forthright, transparent manner are minimal. So he predictably caved in to populism by deciding to double the amount of added tax charged on North Sea oil producers, from 10% to 20%. It means corporation tax for North Sea oil companies jumps from 40% to 50%, compared to 30% for firms in other sectors.
As the price of crude hurtled back over $60 a barrel in the US, Mr Brown was making it even less likely that companies will invest any money in actually getting any more oil out of the fields closest to the UK, thus ensuring our reliance on foreign supplies for the future.
And as we all know from the soaring wholesale gas prices, relying on foreigners – even our friends across the Channel – is not the best energy policy for any country to rely on.
Of course, the Chancellor is a great one for plundering the family silver to make some short term cash – one of his biggest blunders was selling half of the UK’s gold back in 1999, when it fetched half as much as it would have done now.
Undoubtedly more details will emerge over the coming week, and we’ll keep you informed. But suffice to say this Pre-Budget Report was a classic from the Chancellor and everything we’ve come to expect – short-sighted, muddle-headed and sneaky in equal measures.
Turning back to the stock markets…
The FTSE 100 closed 17 points lower at 5,510. Broadcaster BSkyB was the main loser, down 3% to 491p on fears of increased competition in the media sector, as cable company NTL made a 323p-a-share bid for mobile operator Virgin Mobile. Virgin’s shares jumped 10% to 342.5p, to close as top FTSE 250 gainer. The mid-cap index ended lower, down 22 points at 8,476.
Across the Atlantic, US stocks were lower, hit by concerns over rising oil prices. The Dow Jones fell 42 points to 10,835, the S&P 500 shed 3 to 1,262, and the tech-heavy Nasdaq dropped 15 to 2,257.
In Asian trading hours, oil was a little lower, trading at around $59.70 a barrel in New York, while Brent crude traded at around $56.20.
Meanwhile, spot gold hit its highest level since January 1980, climbing to more than $511 an ounce, before slipping back to around $508. Silver also hit a fresh 18-year high, reaching $8.71 an ounce before easing to around $8.65.
In Asian stock markets, the Nikkei 225 shed 127 points to 15,423, as rising oil prices unnerved investors in export companies.
And in the UK, the country’s fourth-largest bank, HBOS has said that 2005 annual profit will probably beat analysts’ forecasts due to solid cost control and a ‘cautious approach’ to lending in the housing market. The group plans to buy back as much as £750m of stock next year.
And our two recommended articles for today…
What’s really driving the soaring gold price?
– Financial analysts say the gold price is being driven by speculation, fear of inflation, and rising demand from Asian countries. But Jeremy Batstone of Charles Stanley doesn’t agree. He believes investors are flocking to gold, not through fear of inflation, but because they are concerned about a far more dangerous economic hazard – to find out what it is, click here: What’s really driving the soaring gold price?
Where to next for UK and US property?
– There have been mixed signals in recent months from both the UK and US property markets. But one thing is clear, say John Robson and Andrew Selsby of RH Asset Management. A credit crunch is coming, and the bond market on both sides of the Atlantic is warning of hard times ahead. For more, see: Where to next for UK and US property?