It will pay to remain unsentimental in 'age of austerity'

THE coalition government's first treasury chief secretary, David Laws, said in an interview just before his resignation to "prepare for an age of austerity". He might have said: "Prepare for an even greater tax take from your government", for this is the reality facing many investors and their advisers.

We knew that change was on its way and, with the budget date confirmed as 22 June, new financial legislation will almost certainly have an adverse impact on net returns for many savers and investors.

Whilst there has been much debate about the lack of clarity for investors about when – not if – any capital gains tax (CGT) changes will be introduced, no one is disputing the likelihood that tax rates will rise. The annual CGT allowance, currently 10,100, may also fall if the Liberal Democrats in the Cabinet get their way. There will also be further adjustments to income and inheritance tax. We have noted over the past few months that many investors and their advisers have already been proactive in financial planning. If you have not done so, then it would be wise to make independent financial advice a high priority for it is likely to be time and money well spent.

Finally, a brief word on markets, particularly for patient investors with significant deposits, who are rightly concerned about increasing taxes, low levels of interest rates and the erosion of real capital value from inflation.

Our view is that, while there is much to be concerned about for example, sovereign debt risk, the Euro, Chinese property prices and increasing inflation levels – equity markets are now discounting a lot of bad news, and there is value if you have a strong research process.

We fully recognise that market sentiment remains fragile, but there are times when professional investors must ignore sentiment and focus on valuation as well as a company's sustainability – this is not just the company's competitive position, pricing power and business model, but its dividend now and in the future. For income will continue to be a very important component of total investment returns in the future.

• Jeremy Richardson is chief executive officer at Cornelian Asset Managers