Of the many giveaways in last week's Budget, one of the most far-reaching has to be the halving of CGT - Capital Gains Tax - from 40 to 20 per cent. The widespread response was that it would release considerable profit tied up in shares and other capital investments that could now be reinvested. Undoubtedly this will happen.
But for many ordinary people, the reduction in CGT will help in more basic ways - such as boosting income, allowing them to sell an investment property that has been hit by the current wave of house inflation or even to purchase a foreign-based investment.
In recent weeks Family Money has touched on all these issues: one reader, Mrs L, who counsels a group of elderly ladies about social welfare and financial issues, passed on their concerns about the CGT implications of selling shares to boost their incomes.
As a result of the Budget, the 40 per cent tax they would have paid on such a sale is now 20 per cent. Before the Budget such a shareholder, say an elderly person with Irish Permanent free shares, could have paid £400 in CGT on every £1,000 worth of shares sold. Now the bill will be £200, although the cut in the threshold from £1,000 to £500 will affect smaller investors.
In last week's column we raised the uneven tax treatment of investments issued from IFSC-based life assurance companies.
Ex-patriate workers, based outside Ireland for a minimum of six months can buy such an unique investment product which is entirely tax exempt so long as it is kept outside the State. It is only taxed at the standard rate at maturity if and when it is repatriated with its owner. Financial advisers have suggested this tax treatment unfairly favoured already privileged ex-pat workers over ordinary, home-based investors who purchased foreign-based savings schemes.
Profits from these policies have been subject, not to standard income tax rates, but to CGT rates of 40 per cent at maturity, with no recourse to CGT index-linking or the CGT allowance, and defied the spirit of the open European market for life assurance products.
While the Capital Gains Tax changes represent good news for many, the 5 per cent increase in DIRT tax - from 15 to 20 per cent on the proceeds of Special Savings Accounts may have a wider, negative impact for many elderly investors than any positive changes to the CGT regulations.
An individual can hold up to £50,000 in an SSA, which in 1993 when first introduced was taxed at 10 per cent, rising to 15 per cent a couple of years ago, and now increased to 20 per cent.
The Minister for Finance, Mr McCreevy, argued that since he was aiming to establish a flat 20 per cent rate of tax, it was appropriate that SSAs come in line with this target.
But he is also keen to channel money away from relatively inert deposits and into more active investment routes that will keep fuelling the economy.
There is a real impetus now for savers who need additional income to reconsider equity-based investments over deposits, despite the higher risk.
The expected sharp fall in deposit interest rates next spring - as part of the lead-up to European Monetary Union - will also have a negative effect on the returns from deposit income.
Products such as fixed-term investment bonds, which pay an annual income and virtually ensure capital protection (so long as the capital remains untouched and there isn't a catastrophic fall in equity markets) may have to be contemplated, if long-term incomes are to be maintained.
