TIME FOR CHANGE
You have no doubt seen the headlines about Wednesday’s budget and many of you will have been inundated with budget reports. I have therefore tried to focus on the issues that affect your financial planning. I think that we were all reasonably surprised by George Osborne’s generosity and also his sensible approach to simplify the pension mine field, but then having spent the last few years making pensions less attractive by reducing how much you can pay in and the amount your fund can grow to, maybe he just felt guilty. Overall it is a good Budget for those people with savings and investments and should benefit many of you in the near future.
Flexible drawdown is generally available to SIPP investors which allows them to take unlimited amounts of income from their pension, subject to some strict criteria. Currently the requirement is to have a secure pension income of at least £20,000 per tax year, which includes the State Pension. From 27th March 2014 this requirement will reduce to £12,000 and will be completely abolished from 6th April 2015.
Higher Drawdown Limits
Under capped drawdown rules, the amount of income that can be taken from a pension is set by the Government Actuary’s Department (GAD) and are known as the GAD rates. The maximum an investor can currently draw is 120% of the applicable GAD rate, but as of 27th March 2014 this will be increased to 150%. Again all limits will be abolished from 6th April 2015. From 6th April 2015, everyone in a Defined Contribution pension scheme will be able to access their entire pension from age 55, with the first 25% being tax free and the remainder being added to income and taxed at their marginal rate.
If an investor has an individual pension pot valued at less than £2,000, they can usually take this as a lump sum at age 60 under triviality rules. From 27th March 2014, this will be increased to £10,000. The first 25% is tax free and the remainder is taxed as income. The number of small pots that can be taken will also be increased from 2 to 3.
If an investor has total pension benefits of less than £18,000, they can take all of these as a lump sum at age 60 under triviality rules. From 27th March 2014 this will be increased to £30,000. Again the first 25% is tax free and the remainder is taxed as income.
From 1st July 2014 a New ISA or ‘NISA’ will come into force which will raise the annual subscription limit from £11,880 to £15,000 per tax year. Unlike current legislation, investors will be able invest the whole amount between a cash ISA and/or a Stocks & Shares ISA.
From 1st July 2014, the junior ISA subscription limit will increase from £3,840 to £4,000 per tax year.
Tax Free Interest
Interest received on cash within a Stocks & Shares ISA is currently paid net of 20% tax but this will now be paid without the deduction of any tax.
From 6th April 2015, the 10% savings rate will be reduced to 0% and the savings rate band will be increased from £2,880 to £5,000.
From 6th April 2015 the personal allowance will increase from £10,000 to £10,500.
Higher Rate Threshold
From 6th April 2014 the higher rate tax threshold will increase to £41,865 and from 6th April 2015 to £42,285.
From January 2015, National Savings & Investments (NS&I) will launch a choice of fixed rate savings bonds for people aged 65 and over. The current plan is a 1-year bond paying an indicative rate of 2.8% gross and a 3-year bond paying an indicative rate of 4% gross, with an investment limit of £10,000 and a maximum inflow of £10 billion.
Although an Enterprise Investment Scheme (EIS) benefits from CGT deferral on gains that are reinvested in EIS shares, this was not the case for the Seed EIS. However the Government will now allow CGT deferral for the SEIS to bring it in line with the EIS.
We hope this summary helps but please do not hesitate to contact me or one of the team if you have any questions.