Aside from the economic news, pensions and saving were in the spotlight as the Chancellor announced some major eye-catching measures to help pensioners and savers.
The Chancellor asserted that the Budget outlined plans for the biggest shake-up in pension taxation since 1921. From 27March 2014:
- The maximum pension drawdown limit will rise from 120% to 150% of an equivalent annuity.
- Flexible drawdown will be permitted with a minimum income of £12,000 instead of £20,000.
- Trivial commutation of small pension pots will be possible up to £30,000, an increase from £18,000.
- The size of small pension pots that can be taken as a lump sum will rise from £2,000 to £10,000; and three pensions instead of two pensions will be able to be taken in this way.
From April 2015:
- There will be no requirement to buy an annuity at retirement – this is the most eye catching change.
- 25% pension tax-free cash remains, but with the residual fund available to be drawn in full at a marginal rate of tax.
- There will be no minimum income pension requirement.
Other Pension Proposals:
- Review of pension death benefit tax charges, currently 55% and consultation on dependants’ pensions.
- Increase in minimum pension age to link to state pension age in 2028, which will be 57 at that time.
- Levy on pension providers to pay for face-to-face advice for all at retirement.
Saving and Investing
From 1 July 2014, cash and shares ISAs are to be merged into New Individual Savings Accounts (NISA’s) with an annual tax-free savings limit of £15,000. The new allowance represents a significant increase from the current limit of £11,520 and is expected to benefit approximately 6 million savers and investors. The new scheme will enable savers to allocate the full allowance to either cash, investments or a mix of the two. A significant change will be the ability to transfer a shares ISA into a cash ISA, which may be useful in times of stock market turbulence.
Savings limits for Junior ISAs will rise to a maximum of £4,000 a year, up from £3,720.
NS&I Pensioner Bonds
New Pensioner Bonds were announced, which will pay “market-leading” rates and will be made available to those aged over 65 from January 2015. Rates of 2.8% for one-year bond and 4% for three-year bond are to be expected with up to £10,000 to be saved in each bond.
Premium Bonds holders benefited as the maximum holding is to be lifted from £30,000 to £40,000 in June and to £50,000 next year. The number of £1 million prizes will be doubled.
EIS, SEIS, VCT
Companies which benefit from Renewable Obligation Certificates (ROCs) and/or the Renewable Heat Incentive (RHIs) scheme will no longer be eligible for EIS, SEIS or VCT status with effect from Royal Assent of the Finance Bill 2014, expected in the Summer of 2014. This change will not be retrospective.
This is a very significant change and in a few months’ time it will effectively exclude new solar and other types of renewable energy company from the EIS, SEIS and VCT arena.
SEISs are to be made permanent and to continue with CGT re-investment relief at 50%.
Legislation will be introduced to prevent enhanced share buyback schemes and payment of dividends via cancellation of share premium accounts.
Tax Rates and Allowances
In a bid to help middle income workers, George Osborne announced the higher rate 40% Income Tax threshold will rise from £41,450 to £41,865 next month, and then by a further 1% to £42,285 next year.
It was also announced that the tax-free Personal Allowance will increase from £10,000 to £10,500 in 2015/16. From April 2015, a spouse or civil partner who does not have income to
fully use up their personal allowance, will be able to transfer up to £1,050 to their partner, provided that partner is a basic rate taxpayer.
The 10p starting rate of tax on savings income will also be abolished, good news for savers with a modest level of income. It means that up to £15,500 of savings income could be received tax-free.
The Capital Gains Tax (CGT) annual exemption will rise by £100 to £11,000 in 2014/15, and to £11,100 in 2015/16.
The Inheritance Tax (IHT) Nil Rate Band will remain frozen at £325,000 until 2017/18.
The proposed IHT simplification on use of the Nil Rate Band and rates of tax for trusts in the relevant property regime, expected to be in Finance Bill 2014, has been postponed until Finance Bill 2015.
Following its success in helping to improve the housing market, The Help-to-Buy equity scheme for new-build homes has been extended to 2020.
Working families struggling to meet childcare costs will get a welcome £2,000 a year boost from the Government. From Autumn 2015 families can get 20% tax relief on savings used for childcare up to a maximum of £10,000 for each child under 12 years old. An online scheme will be run by HMRC in partnership with NS&I. To be eligible, families must have both parents in work (which includes self-employment), with each earning less than £150,000 a year, and they must not already receive support through tax credits or universal credit. Families cannot be in both employer supported childcare schemes and the new tax-free childcare scheme. Some families will be better off in one or the other, so advice should be sought.
Tax on homes owned through a company is to be extended from residential properties worth more than £2m to those worth more than £500,000 at a punitive tax charge of 15%.
Socially-aware investorswill be able to take advantage of new social investment tax relief with a 30pc tax break. This is in line with the tax break that investors get when they invest in venture capital trusts.
This Budget summary is based on our understanding of the proposed legislation, which is subject to change. Accordingly, this summary should not be used as the basis for any decisions and does not constitute advice. If you would like individual advice, please get in touch with us.