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Product category: Protection
News Release from: Scottish Widows | Subject: ISA
Edited by the Insidemoneytalk Editorial Team on 22 March 2007

Views on ISAs, Inheritance Tax, PETs,
Pensions Term Assurance and Stamp Duty

Scottish Widows comments on the Budget

ISA Regime Commenting on the change to ISAs, Anne Young, Technical Director at Scottish Widows, said: "The increase in the overall annual contribution limit to ?7200 from 6 April 2008 is of course welcomed - although a bigger increase would have been better - perhaps in line with the 20% increase in the cash limit Equities have traditionally delivered higher returns than cash and the Government should continue to encourage stocks and shares investment for the long term

"The fact that ISAs have a long term future is to be welcomed as are the proposals to simplify the rules.

The changes to the ISA rules will not come in until 6 April 2008 which should give consumers and the industry time to adapt to the new rules.

In particular the removal of the mini/maxi distinction should help members of the public better understand the ISA rules and the facility to allow transfers from cash to stocks and shares should encourage long term investment which is really to everyone's benefit." IHT Threshold Commenting on the change to IHT Threshold, Anne Young, Technical Director at Scottish Widows, said: The inheritance tax (IHT) nil rate band threshold will increase to ?300,000 on 6 April 2007 as forecast in previous Budgets and will increase in stages to ?350,000 in 2010/11.

While this increase from ?285,000 in 2006/07 is to be welcomed, it will still leave many people with a potential IHT problem as house prices are currently increasing at a higher rate than is the threshold.

People need to add up the value of their assets and do a rough calculation to see if they have a potential problem when they die.

Some simple steps can be taken in many cases to side-step or even avoid a charge.

It is important that advice is taken in good time.

PETs Commenting on PETs, Anne Young, Technical Director at Scottish Widows, said: It is encouraging that despite rumours to the contrary, potentially exempt transfers (PETs) are still with us.

Absolute gifts to an adult are still free of lifetime IHT and will fall out of account entirely if the donor survives for seven years.

A PET is an important tool in inheritance tax (IHT) planning as an unlimited sum could possibly be given away without any IHT being paid - provided the donor survives the seven years.

However, great thought needs to be taken before making an absolute gift as it is exactly that - it cannot be taken back.

And should the recipient become bankrupt or divorced this absolute gift becomes vulnerable to a claim.

PETs do still remain liable to removal at some point in the future so perhaps they should be regarded as a 'Buy now while stocks last' commodity.

Pension Term Assurance (PTA) Commenting on the withdrawal of PTA, Nick Kirwan, Protection Market Director at Scottish Widows, said: "U-turns like this send out completely the wrong message to consumers about the need for protection.

We worked hard with the Treasury to get to an acceptable middle ground position and were confident that we had reached a workable solution to link PTA to a pension.

So this is a severe blow for consumers who will no longer have any tax incentive to protect their families.

"It's also a severe blow to the industry which has collectively invested and lost around ?35 million in developing products and systems.

And as the Government only introduced PTA less than a year ago, this u-turn has left the industry with sub-scale portfolios to administer for the next 25 years or more.

What we need now is a clear strategy from the Government on how the State, the industry and employers can work together to address the protection gap.

If we'd had a cohesive strategy before A Day last year we wouldn't have been in this position, so let's now work together to ensure we don't get here again." Stamp Duty Threshold Richard Clark, head of product development and marketing at Scottish Widows Bank, said: "We are disappointed that the Chancellor has made no change to the thresholds for Stamp Duty, we believe the Government needs to be doing more to help first time buyers.

"The Scottish Widows Bank Graduate First Time Buyer report showed that on average across the UK, 18% of first time buyers are paying over ?150,000 to get their foot on the property ladder, rising to 42% in London.

For this section of the market, Stamp Duty is a particular burden.

The majority of these buyers need to stretch their finances to the limit just to secure a property, without having to pay this additional tax.

It can often lead to buyers taking on extra debt.

"Our research also indicated that nearly a quarter (23%) of people who borrow money from family or friends when purchasing a property use it to pay Stamp Duty.

This extra layer of debt only adds to financial worries.

The Industry has worked hard over the last few years to design products that help first time buyers as much as possible and we believe the Government could be doing more.

"As house prices continue to rise steadily, we would encourage the Government to consider scrapping the tax completely for first time buyers.

As the lifeblood of the property market, it is vital that as many barriers as possible are removed to ensure that people are not being priced out of buying.".

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