'It's clearly a Budget. It's got a lot of numbers in it." Those were the classic words chosen by George W Bush to describe one of his earliest Budgets, on taking charge of the US administration. The phrase could equally be applied to the Chancellor Gordon Brown's pre-Budget report last week.

There were indeed a lot of numbers in it, and a lot of them focused on the increased level of Government debt. The Treasury will need to go cap in hand to the City, asking the institutions for money through the issue of further Treasury Stock.

These funds end up in the portfolios of private investors, meaning that the Government is effectively lending from the public.

As always, buried amongst the detail of the pre-Budget supporting material, were notes on how individual investors will be affected in the coming years.

The original intention for ISAs, as a follow-on from PEPs, was that the initial subscription allowance would be £7,000, and that this would drop to £5,000 after one year. The £7,000 level was subsequently maintained, but will now drop to £5,000 from the 2006/2007 tax year. There will, therefore, be a further two years where individuals may subscribe up to £7,000 in a Maxi Stock and Share ISA. The snag to this, however, is that the tax reclaim facility will stop from April next year. The reclaim ensured that investors not only received dividends from their shareholdings in PEPs and ISAs, but also the tax deducted from dividends was reclaimed on their behalf by the plan managers.

There is a common misconception that PEPs and ISAs have to be taken out through separate unit trust companies, and the vast majority are indeed this way. The rules are not so inflexible, however, and if ISAs and PEPs are transferred to stockbroking firms, with an in-depth knowledge of the stock market, investments can be made in part unit trust, part individual shares or 100 per cent the latter.

People generally take out different ISAs on an annual basis, and do not consider their year-on-year investments collectively. Investors should consider their ISAs as one big pot, rather than individual accounts. Someone who has taken out four ISAs in the past four years could potentially have £28,000 to invest, which provides more scope for diversification than four separate accounts worth £7,000 each.

There are two things that are certain in life; death and taxes. Nobody particularly likes either. Many people fail to realise the impact of Inheritance Tax, particularly so following substantial house price increases during the past few years. A popular method of avoiding Inheritance Tax has been the use of trusts. The Treasury views the creation of family trusts as tax avoidance. Last week's pre-Budget report moved to close these tax avoidance loopholes. The small print included rules that Income and Capital Gains Tax on assets held in trust will be raised from 34 per cent to 40 per cent. As a result, tax paid within trusts will match higher rate tax paid on income and gains held outside trusts.

Despite the pre-Budget, Christmas is a good time to reflect on 2003 and make steps to ensure that 2004 starts on the right track.

Merry Christmas from Wise Speke.

*For investment advice contact Anthony Platts on 01642 608855.

Published: 16/12/2003