How to protect yourself from the money meltdown ahead

AS THE polls suggested, there was no clear victor from Thursday's general election, and the parties will have to do deals if Britain is to be governed in the national interest.

A Conservative government supported by the Lib Dems looks the most likely option, which means we may still be on track for an austerity Budget in about 50 days' time.

In any event, the turmoil in Europe, roller-coaster share prices, tumbling gilts and a weakening pound would have demanded any new government sought to avert a UK economic crisis with a tough emergency budget to reassure overseas investors.

So brace yourself for tax increases which were never mentioned in election manifestos, as well as cuts to the welfare state. But you may be able to mitigate some of the worst impacts by acting quickly. Here are ten tips for the money meltdown to come.

1. Bring forward big purchases

Higher VAT looks a strong runner, despite the various proclamations that "they had no plans to raise it" from the various parties. If you are planning any big buys, then bring it forward.

2. Cut tax bills any way you can

The Lib Dems may attempt to wield influence to introduce their 10,000 personal tax allowance, giving a big tax-free boost to most middle income families. This is a policy the Tories would normally support, if there was money to pay for it. If this goes ahead, taxes will have to rise elsewhere to fund it. So make the most of your Isa allowance to shelter your savings and investments from tax. If the new balanced government gets to grips with our economic woes, then family, business and public sector budgets are in for a painful squeeze.

To prevent a double dip recession, interest rates will have to be kept low to stimulate the money supply. Returns from savings are likely to remain weak, so sheltering what you do earn from tax is vital. Also consider paying more into your pension, or look at National Savings' tax-free accounts.

3. Prepare for pension pain

A major Lib Dem policy was scrapping higher rate relief on pensions. Though not a Tory or Labour policy, it would raise some money. This could be an austerity measure that the Lib Dems win. If you are a higher rate taxpayer considering pensions investments, do it now.

4. Get an annuity quote

Gilt prices have been slipping, pushing up yields, which means you can get a higher pension for your nest egg than a few weeks ago. However, the outlook is uncertain and annuity rates are fluctuating, with some companies, such as Standard Life, actually cutting what they pay. If you are coming up to retirement then get a few quotes. These will normally be open for at least 14 days, although check terms with the company.

5. Don't abandon inheritance planning

Without a clear majority, the Conservatives may not be in a position to press ahead with a major inheritance tax cut, and would have to place their plans for a 1 million threshold on ice. If your home and other investments bring you up to the current 325,000, or 650,000 in today's prices for a couple, then you should look at measures to mitigate a potential 40 per cent tax.

6. Cash in big gains

An overhaul of capital gains tax was another major plank of Lib Dem tax policies, and many had long thought the 18 per cent CGT rate unsustainable with a top rate tax of 50 per cent. It could well be aligned to income tax, so you pay CGT at your top rate. If you have any big gains, particularly on property which is not your main home, it could be worth realising them before the austerity Budget.

It becomes even more important to shelter shares in an Isa, so it could be worth selling holdings and buying back in the tax shelter, or even in a Sipp tax-free wrapper.

However, you must do your sums carefully, as the recent falls in the market may mean it is not a good time to sell.

7. Invest abroad

With the pound weak, and growth sluggish in the UK, investors should consider spreading their investments to economies with the biggest growth prospects. Alan Steel, of Alan Steel Asset Management, said: "When you look at emerging economies like India, China and Brazil, you have a population which is hungry for higher living standards and prepared to work hard to achieve them, governments with low levels of debt, and great demographics in terms of a young workforce. They offer great prospects for growth free of the problems associated with the older economies."

8. Think about your mortgage

Interest rates are not expected to rise any time soon, provided the new government heads off the financial storm clouds. However, if you can't take the risk, or can't sleep at night for worrying about a sudden sharp rise in monthly repayments, then consider fixing your rate. Commentators do not believe fixed deals will become significantly more competitive from this point on.

9. Hold fire on the house sale

Activity in the housing market has been weak during the election campaign because of the uncertainty of the result. This could continue until we are assured we have a firm government in place with no need for another election within a year. A good time to buy; but if you want to sell, but don't need to, it could pay to hang on.

10. Think Europe for your holiday

Sterling fell in the immediate aftermath of the poll, yet this comes after a good run recently against the euro.

A euro now costs about 84p to buy, compared with 1 last year when the euro and sterling reached near parity. Dealers at Currencies Direct predict it could pick up again to about 80p by the summer, giving Britons more buying power abroad.

However, this is still weaker than five years ago when a euro cost UK travellers just 64p. Currencies Direct spokesman Mark O'Sullivan said: "You need to be patient and stand back for a bit and let the pound settle. It was already firming up on Friday when a deal between the Conservatives and Lib Dems looked likely. The markets liked that."

The pound also fell against the dollar, but at around 66p it is still cheaper for UK travellers than last year when each dollar cost 74p.