Summary of the Lib Dem tax plans from Hargreaves Lansdowne.

Start-up/Green ISAs
Proposal: Liberal Democrats would introduce new tax-free investment opportunities for individuals in the form of additional ISA allowances for investments into enterprises with environmental and/or technological benefits, such as local renewable energy generation projects and technology companies carrying out research and development. Danny Cox, Head of Financial Planning: ISAs are phenomenal success story not least as they are simple and the rules are pretty static. The introduction of a new Green ISA would over complicate matters. Investors can already invest in green investment funds or shares and now AIM stock can be purchased in ISA, they can also choose smaller companies.

Capital gains tax
Proposal: Tax capital gains as the top slice of income, up to 45 percent, with an allowance for inflation. Reduce the CGT exempt amount to £2,000 and allow the personal allowance to be used against capital gains. This would increase the top rate of CGT from 18 percent to 20 percent for basic rate taxpayers and from 28 percent to 40 percent for higher rate taxpayers and 45 percent for additional rate taxpayers. For an additional rate taxpayer this combination would increase the tax on a £20,000 gain from £2,548 to £8,100 (assuming full available CGT allowance used). Danny Cox: “Clearly the Lib Dems see capital gains tax as a core target – currently it produces very little for the Exchequer – in 2012/13 it raised £3.927 billion. However, Governments should be using tax policy to encourage investment not putting obstacles in its way. A reintroduction of indexation would be welcome, its never made sense to pay tax on indexed increases, however a headline increase to the rate of capital gains tax would act as a deterrent.”

Inheritance tax
Proposal: Extend the 7 year period for inheritance tax to 15 years. Replace IHT with a system under which the beneficiary, not the estate, is taxed based on the circumstances of the beneficiary. Danny Cox: “Extending the gifting period to 15 years is unlikely to increase the amount of IHT paid significantly. Inheritance tax is also relatively small beer in terms of tax take. Around 15,000 estates pay IHT. IHT is one of the most unpopular taxes with investors, having already paid tax on their earnings and investments through their lifetimes. The Lib Dems seem intent on increasing the taxes on wealth which does little to encourage entrepreneurship and investment.”

Pensions
Proposal: Reduce the Lifetime Allowance (LTA) from £1.25 million to 1 million. Since the LTA was introduced in 2006, we have seen it rise from £1.4 million to £1.8 million before falling back to £1.25 million. Each change has resulted in another round of protections for investors to ensure they aren’t unfairly penalised. This makes sense however we are in danger of ending up with the tail wagging the dog. We already have:

• Primary Protection
• Enhanced Protection

• Fixed Protection 2014
• Individual Protection 2014

Any further reduction in the LTA will result in yet another layer of protection.

Tom McPhail, Head of Pensions Research: “The Liberal Democrats’ call for a further reduction in the Lifetime Allowance smacks of ill-timed tinkering, rather than a constructive policy proposal. A reduction in the LTA to £1 million would translate into a maximum inflation linked pension of around £37,000 a year for a 65 year old. This sets a very low ceiling on investors’ retirement ambitions. It is increasingly clear that large parts of pensions regulation and legislation are no longer fit for purpose. However in the midst of auto-enrolment, this is absolutely not the time to be making further adjustments which will achieve little more than to irritate investors and add yet another layer of complexity and bureaucracy. We should leave pensions alone for the next 5 years, with absolutely no rule changes apart from the most essential maintenance work. This will help to ensure that auto-enrolment is a success. In the meantime, the Treasury, the DWP, the FCA and the Pensions Regulator should quietly work with the pensions industry for a second round of pension simplification, towards the end of this decade.”