Budget Summary
George Osborne delivered a Budget for
bingo-playing baby-boomers who have yet to draw their private pensions,
announcing sweeping reforms to the taxation of pensions and halved bingo duty.
Most taxpayers aged under 67 will benefit
from an increase in the personal allowance from £10,000 to £10,500 from April
2015. A new transferable married couples' allowance of £1,050 will be
introduced, but will only help basic rate taxpayers. Good news too for savers,
who will enjoy higher tax-free limits for ISAs and premium bonds later this
year, plus a cut in tax on savings income from 2015.
The traditional “bad habit” taxes on booze
and fuel have largely been frozen or even reduced, although tobacco suffers a
2% above inflation tax rise. The new "sins" appear to be; owning a
valuable home through a company and operating a high-stakes gaming machine.
Businesses continue to be encouraged to
invest in equipment by an increase in the annual investment allowance to
£500,000 from April 2014, and reliefs for investing in small trading companies
and social enterprises are enhanced. Small and medium sized companies who
undertake R&D are also given additional tax relief.
The losers are those who use tax avoidance
schemes, as those sinners will have to pay the tax avoided up front. Several
other tax loopholes used by groups of companies are blocked, and the rules for
VCT schemes are tightened-up to deter abuse.
Income Tax
The standard personal allowance rises to £10,500
from 6 April 2015. The age related allowances are gradually falling in line
with age-related allowances given to taxpayers born since April 1948.
The transferrable allowance will apply from
6 April 2015 to couples (married or civil partners) where neither person pays
tax at the 40% or 45% rates. The spouse who cannot use all their personal
allowance against their own income will be able to opt to transfer 10% of their
personal allowance to their spouse or civil partner.
The personal allowance is tapered away for
individuals who have income over £100,000, at the rate of £1 for every £2 of
income above that threshold.
Income tax rates are to remain the same to
5 April 2016, with the exception of the savings rate. This will be cut to 0%
from 6 April 2015. However, the savings rate only applies if individual's net
non-savings taxable income does not exceed the savings rate limit.
When the personal allowance is taken into
account an individual will start to pay tax at 40% when their total income
exceeds £41,865 in 2014/15 and £42,285 in 2015/16. This is compared to a 40%
threshold of £41,450 in 2013/14. This threshold (and the 45% threshold) can be
increased if the taxpayer pays personal pension contributions or makes gift aid
donations.
Pensions
Pensions
The following changes will be introduced
from 27 March 2014:
- A person who wishes to take their pension as "draw-down" instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
- The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
- The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
- The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
- The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to
change the rules for defined contribution pension schemes from 2015 so that:
- Individuals will have complete freedom in how they access their pension savings;
- Buying an annuity will not be a requirement on retirement;
- The 55% tax charge on withdrawing too much from a pension fund will be removed; and
- Everyone will be offered free and impartial advice on how to best use their pension savings.
Inheritance Tax
The inheritance tax (IHT) nil
rate band will remain frozen at £325,000 until 2017/18, and the rates of IHT
payable on death remain unchanged at 40% or 36% where at least 10% of the net
estate is left to charity.
The government will consult on
extending the existing IHT exemption for the estates of members of the armed
forces, whose death is caused or hastened by injury while on active service, to
members of the emergency services.
This newsletter is a summary of
some of the key points from the Budget, based on the documents released on 19
March 2014. It is possible that a different position will be shown by the draft
legislation which will be published on 27 March 2014. If you have any queries
please call Steven Holden on 0844 556 8674 or 07805
417829, or via email on steveholden@hcbsolicitors.com
