Giles Cross, Head of Marketing & Public Relations at Sanlam UK, says there's an unseasonal fog in the air
Lots of crowd pleasing to be sure. A lovely gesture for those working in the emergency services and it would appear that "blessed are the cider drinkers"; some interesting changes there around airline duty and some welcome relief for the flood victims. But, to you and me, the ordinary tax-payer (irrespective of whether that's basic or higher-rate), the benefits are a bit "foggy".
An increase in the personal allowance. That's good. An increase in the higher-rate tax threshold. Also good. On paper; but the latter below inflation. The introduction of a "Super ISA" is great, but only really excites those who can afford to save as a larger allowance is little incentive for the "saver", so targeted in the opening address, on its own. The sweeping changes to pensions only really apply to those who "have money" and again offer little incentive to those who are beginning the retirement savings journey. What's the best retirement savings vehicle now? Your pension or your ISA? And what comfort for those recent retirees who have just purchased those annuities that now seem so unnecessary?
So, what are the highlights?
The Chancellor billed his fifth budget as one that sets out further action to secure the economic recovery and build a resilient economy.
As I said, it looks good at face value…
• The tax-free personal allowance will rise by £560 to £10,000 from 6th April 2014 with a further increase to £10,500 in April 2015.
• From the 2015/16 tax year, married couples and civil partners will be able to transfer 10% of their personal allowance to their respective spouse or civil partner. This will give a transferable allowance of £1,050 from 6th April 2015. However, the ability to transfer part of the personal allowance will only be available where neither partner is a higher or additional rate tax payer.
• Higher rate tax threshold increased to £41,865 from 6th April 2014, with a further increase to £42,285 in April 2015. This appears generous but is below inflation.
• From April 2015 the 10% starting rate of tax will be abolished and replaced with a new 0% rate. At the same time the band of savings income that the new 0% rate applies to will increase from £2,880 to £5,000.
Capital Gains Tax (CGT)
Mmmm. Any real value for the "average Joe" here..?
• The annual exemption will increase by £100 to £11,000 from 6th April 2014, with a further increase to £11,100 in April 2015.
• Finance Bill 2014 will legislate for a reduction in the final period exemption for private residence relief from 36 months to 18 months from 6th April 2014.
• The government will introduce CGT on future gains made by non UK residents disposing of UK residential property, from April 2015.
Inheritance Tax (IHT)
All good here…
• The government will consult on extending the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services.
• As a reminder the IHT nil rate band remains frozen at £325,000 until 2017/18.
Some good news for business, hopefully stimulating growth…
• Main corporation tax rate will reduce to 21% from April 2014, then 20% from April 2015.
• Small profits rate of corporation tax will remain at 20% from April 2014.
• The government will increase the annual investment allowance to £500,000 (allowance previously £250,000) for all qualifying investment in plant and machinery made on or after 1 April 2014 until 31 December 2015.
Here it gets a little complicated but, in summary, the whole situation for those nearing retirement appears like it's going to get a whole lot better…
From 20 March 2014:
- Changes will be introduced to give HMRC broader powers to prevent pension liberation with greater control over the registration and de-registration of pension schemes. Further changes will kick in from September 2014.
From 27 March 2014:
- The minimum income requirement (MIR) for flexible drawdown is reduced to £12,000 pa
- The maximum income limit for capped drawdown is increased to 150% GAD of the basis amount.
- The trivial commutation limit is increased from £18,000 to £30,000
- The size of a small pension pot that can be taken as a lump sum is increased from £2,000 to £10,000
- Up to 3 small pension pots of up to £10,000 can be taken (an overall total of £30,000)
Comment – the devil will be in the detail, including how all of this is going to work.
As we already know from the 2014/15 tax year:
- The standard lifetime allowance reduces to £1.25million
- The annual allowance reduces from £50,000 to £40,000
- No further applications may be made for Fixed Protection 2014
- The full Basic State Pension will rise by £2.95 to £113.10 a week
Applications for Individual Protection will be possible for those individuals with pension savings of between £1.25 and £1.5 million as at 5 April 2014 from mid- August 2014 until 5 April 2017.
From April 2015 :
- Legislation will be introduced to allow individuals aged 55 and older to withdraw all their pension savings in defined contribution schemes, over and above their tax free lump sum, as a lump sum subject to income tax at their marginal tax rate.
- All individuals taking pension benefits from a defined contribution pension scheme will be offered free guidance on their retirement options – this will mean a new duty for pension providers and trust based pension schemes (e.g. occupational pension schemes). Development costs up to £20million will be made available from the government to develop this initiative.
- These proposed changes also have implications for those in defined benefit schemes. For those in public sector schemes the intention is to limit the option to transfer away from these schemes.
- A consultation paper has been published today on how to best implement all of these changes.
Also under review will be:
- the 55% tax charge that currently applies to certain benefits on death.
- the tax rules that prevent individuals aged 75 and over from claiming tax relief on pension contributions.
- The minimum pension age in the pension tax rules is to rise broadly in line with the increases in the State Pension Age (SPA). The intention is that the minimum pension age increases from age 55 to age 57 from 2028
At this stage we cannot provide any more "flesh on the bones" than this.
The Chancellor said this was going to be a "Budget for savers" and there were significant improvements to ISAs…
• The Annual ISA limit will be increased to £11,880 from 6th April 2014. Up to half this amount can be subscribed to a cash ISA. At the same time the Junior ISA and Child Trust Fund (CTF) annual subscription limit will rise to £3,840.
• The Chancellor then sprang a surprise by announcing existing ISAs will be reformed into a new simpler product available from 1st July 2014 dubbed the New ISA (NISA).
• Annual NISA subscription limit will be £15,000 from 1st July 2014. The NISA allowance can be subscribed to a cash NISA, a stocks and shares NISA or any combination of the two.
• Investors making the maximum ISA subscription between 6th April 2014 and 1st July 2014 will be able to top up to the new NISA limit on or after 1st July 2014.
• Currently stocks and shares ISAs cannot be transferred into cash ISAs. This restriction will be removed when NISAs are introduced and stocks and shares to cash transfers will be permitted.
• The annual subscription limits for Child Trust Funds and Junior ISAs will be increased to £4,000 from 1 July 2014, again top ups can be made up to these new limits.
Difficult to see what the benefits here are, but hopefully things will be a little clearer…
• Following a consultation announced at Budget 2013, from April 2016 Class 2 NICs for the self-employed will be collected through self-assessment.
• The Budget confirms further details about the new class of Voluntary National Insurance Contributions (VNICs), which will enable those who reach State Pension Age before 6th April 2016 to top up their Additional State Pension record. The scheme will be open from October 2015 for 18 months. The pricing will be set at an actuarially fair rate and the maximum additional amount available will be £25 a week.
And the nice bits…
• Premium Bond maximum holding to rise to £40,000 in June 2014, with a further increase in the maximum holding to £50,000 in 2015/16. From August 2014 the number of monthly £1million prizes will double to two.
• January 2015 will see the introduction by National Savings and Investments of two new fixed rate savings bonds for over 65s. Details to be finalised in the autumn but current market conditions indicate likely interest rates of 2.8% gross on a one year bond and 4% gross on a three year bond. Investment limit of £10,000 per product.
• From April 2014 the government will increase the Share Incentive Plans annual limits to £3,600 per year for free shares and to £1,800 per year for partnership shares. At the same time the maximum monthly amount that an employee can contribute to Save As You Earn (SAYE) savings arrangements will increase from £250 to £500.
• Tax on a typical pint of beer will be cut by 1p from 24 March 2014.
• Duty frozen on cider and Scotch whisky.
• The rate of bingo duty will be reduced to 10% from its current rate of 20%. Thank goodness!
So, will it benefit you and me? Difficult to say. With regards to the changes to pensions and ISAs you should really take professional advice before taking any form of financial "action" (especially if you're nearing or at that "at retirement" stage).
However, one thing’s for sure; Ed Miliband seemed genuinely flustered. He didn't attack the Budget, he attacked the Tories; and that suggest to me that Labour weren't expecting it and they don't like it; which suggests that you, me, and the potential floating voter just might…