We take the opportunity to outline some of the key points / issues arising out of Chancellor George Osborne’s Budget 2014 speech.
From 27th March 2014 to apply until April 2015:-
Capped Drawdown limits
Legislation will be introduced in the Finance Bill 2014 to increase capped drawdown limits from 120% to 150% of the basis amount for drawdown pension years commencing on or after 27th March 2014. For example, if a member first became entitled to drawdown pension on 3rd August 2013, the higher maximum drawdown pension of 150% of the basis amount would first be available on 3rd August 2014.
The minimum income requirement, whereby an individual must have an amount of secure pension income to access flexible drawdown, is being reduced from £20,000 to £12,000 per year.
The triviality limit that allows individuals to take their pension savings as a trivial lump sum will be increased from £18,000 to £30,000.
Small pension pots
The limit on the amount that can be drawn from small pension pots in certain circumstances will increase from £2,000 to £10,000. This covers occupational schemes where the total value of all schemes related to the same employment does not exceed the £10,000.
In addition, up to three personal pension pots can also be drawn in this manner, with the £10,000 limit applying to each individual pot. There are certain criteria that must still be met, such as the minimum age of 60, to use these facilities.
These payments can be made in addition to the new triviality limit of £30,000.
From April 2015: the proposals:-
The Government wants to make the rules for accessing retirement savings under defined contribution schemes simpler and provide a greater amount of choice.
The proposal is to allow individuals to drawdown their pension savings however they wish after the age of 55. They could, if they wish, withdraw the full amount. The amount they draw will be subject to their marginal rate of income tax.
Tax-free lump sum
Tax-free lump sums of 25% will continue to be available.
Lump sums on death
The 55% tax charge on certain lump sum death benefits will be reviewed. The Government believes that a flat rate of 55% will be too high, and will engage with stakeholders to review the rules to ensure that taxation of pensions on death is fair under the new system.
Tax rules on accumulation
There are no changes proposed to pensions tax relief during the accumulation phase. The government still believes that an annual allowance and lifetime allowance are the fairest way to restrict the total tax-privileged pension saving an individual can make. These are set to fall to £40,000 and £1.25m respectively on 6th April 2014.
Date from which benefits can be taken
The government proposes to increase the normal minimum pension age (i.e. the earliest date benefits can normally be drawn), from 55 to 57 in 2028, to coincide with the point at which the State Pension age increases to 67. Thereafter it will be linked to the rate of State Pension Age increases.
Individual Savings Accounts (ISAs)
Cash ISAs / Stocks & Shares ISAs
With effect from 1st July 2014, there will no longer be cash ISAs and stocks and shares ISAs. These will all become New ISAs (NISAs). NISAs will have a subscription limit of £15,000 which can be applied in any proportion between cash and stocks & shares. Holding cash where stocks & shares are held will no longer result in a 20% flat rate charge on the interest earned on cash.
This will also remove any restrictions on transferring from cash only ISAs to stocks & shares ISAs, or vice versa.
Child Trust Funds and Junior ISAs
Regulations are being amended to increase the subscription limit to £4,000 with effect from 6 April 2015.
Inheritance Tax (IHT)
Nil rate band
The nil rate band will be kept at £325,000 until 5th April 2018.
“Killed in war” exemption
The chillingly named “killed in war” exemption provides complete exemption from IHT on the death estate of a member of the armed forces or certain associated services whose death was caused by injury or disease received or aggravated while he or she was on active service.
This relief will be extended to members of the emergency services.
The Office of Budget Responsibility estimates an IHT yield of £5.8 billion for 2018-19 (contrasted with £3.5 billion for the current year).
Capital Gains Tax
The annual exemption allowance for the next two years have been confirmed as £11,000 for 2014 / 2015 and £11,100 for 2015 / 2016.