A number of highlights from yesterday’s Budget 2015 by Chancellor George Osborne affecting financial planning: –
Lifetime Allowance (LA)
If you hold pension assets valued at more than the LA, penal tax charges may apply when you take benefits. The limit is being reduced from the current £1.25m to £1m from April 2016, a far cry from the £1.8m which applied a number of years ago.
The Chancellor stated that the reduction is to counter the cost of pension tax relief which has increased from £30.8bn in 2009/10 to £34.3bn in 2014/15.
As previously when the LA was lowered, transitional protection is likely to be available to enable savers to opt for the current LA although this has not been announced yet.
Individual Savings Accounts (ISAs)
The new limit from 6th April 2015 will be £15,240 which can be held in cash or equities.
Regulations will be introduced in the autumn to enable savers to withdraw and replace money from their cash ISAs without this counting towards their annual ISA subscription limit for that year.
The Junior ISA limit will be increased to £4,080.
Help to Buy ISAs
From the autumn, these will be available allowing people aged 16 and over to save up to £200 per month on top of an initial contribution of £1,000 towards a deposit on their first property.
Although there is no limit to the savings held, the Government will add a bonus of 25% on the first £12,000 at the time of the house purchase. Therefore there will be a maximum bonus of £3,000. The bonus is on an individual basis so a couple could save £24,000 and earn a bonus of £6,000.
The property value limits will be £450,000 in London and £250,000 elsewhere. The scheme will be open for 4 years.
Personal Savings Allowance
From 6th April 2016, this new personal allowance will be introduced of £1,000 for basic rate taxpayers and £500 for higher rate tax payers against which savings interest may be set. For most savers, therefore, interest will be tax free. Deductions of savings tax by financial institutions will also cease.
From April 2016 people who are already receiving income from an annuity will have the option of agreeing with the annuity provider to sell this to a third party in return for a lump sum, taxable at marginal rate. This is designed to complement the forthcoming pension flexibility for pre-retirement investors
Retail investors i.e. individuals will not be allowed to buy the annuities due to the complexity of determining a fair price.
Inheritance Tax (IHT)
The nil rate band will remain at £325,000.
Capital Gains Tax (CGT)
The exemption allowance is rising to £11,100 from 6th April 2015 from the current £11,000.
From 6th April 2015, married couples and civil partners born after 5th April 1935 will be eligible for a new transferable tax allowance. One individual may transfer up to £1,060 of their personal allowance to their spouse or civil partner, although only where neither partner is a higher rate tax payer. It will benefit couples where one is a basic rate tax payer and one has unused personal allowance.