ve·rac·i·ty

· n sing. habitually truthful

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Budget 2014 & The New Pension Legislation

PENSIONS
In order to provide individuals with increased choice and flexibility when they come to access their pension savings, the Budget announces some radical changes to pensions, some of which are immediate.

From 27th March 2014
Transitional rules come into force until the major changes start in April 2015

• The minimum income requirement for flexible drawdown will be reduced from £20,000 to £12,000.

• The maximum trivial commutation lump sum will be increased 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 be increased from £2,000 to £10,000; and the number of personal pots that can be taken under these rules will be increased from two to three.

• The capped drawdown limit will also be raised from 120% to 150% of an equivalent annuity.

From April 2015
Radical legislation will be introduced to allow those with Defined Contribution pension savings to draw down from them from age 55 from April 2015, subject to their marginal rate of income tax and their pension scheme rules.  The pension commencement lump sum will remain tax-free, and any income taken after this time can be taken without limit and taxed at the pension saver’s marginal rate.

The Government will will also consult on a proposal to raise the age at which an individual can take their private pension savings from 55 to 57 in 2028, at the point that the State Pension age increases to 67.

For consumers there will be greater choice and the need to make bigger decisions about their retirement provisioning.  “With greater freedom comes greater responsibility”

PENSIONER BOND
The Government has also announced a new Pensioner Bond, available to everyone over 65, paying “market-leading” rates of 2.8% for one-year bond and 4% for three-year bond – up to £10,000 to be saved in each bond. The bond from National Savings and Investment (NS&I), will be available from 1 January 2015.

INCOME TAX
Personal Allowance
As stated in the last Budget, the income tax personal allowance for 2014/2015 will be increased to £10,000 with effect from 6 April 2014, and the basic rate limit will be reduced from £32,010 to £31,865.

For 2015/2016, the personal allowance for those born after 5 April 1948 will be increased to £10,500, and the basic rate limit will be further reduced to £31,785. The higher rate income tax threshold will increase to £41,865 in 2014/2015 and £42,285 in 2015/2016.

Transferable tax allowance for married couples
With effect from 6 April 2015 a spouse or civil partner who is not liable to income tax above the basic rate will be able to transfer up to £1,050 of their personal allowance to their spouse/civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.

Personal allowances for non-residents
The Government plans to hold a consultation on whether the personal allowance could be restricted to only be available to UK residents and those living overseas who have strong economic connections in the UK (as is the case in many other countries, including most of the EU), in a bid to ensure that the use of this allowance is well targeted.

The starting rate of tax for savings
From 6 April 2015 the starting rate of tax for savings income (such as bank or building society interest) will be reduced from 10% to 0%, and the maximum amount of taxable savings income that can be eligible for this starting rate will be increased from £2,880 to £5,000.

In effect, this will mean that an individual will not be taxed on any interest they receive, provided their total taxable income for 2015/2016 does not exceed £15,500. In other words, with effect from 6 April 2015, if a person’s total taxable income will be below the total of their tax-free personal allowance plus the £5,000 starting rate limit for savings, they can register to have interest paid on their accounts without tax deducted, using form R85.

CAPITAL GAINS TAX
CGT annual exempt amount
The annual exemption for individuals will increase by 1% a year in 2014/2015 and 2015/2016 to £11,000 from 6 April 2014 and £11,100 with effect from 6 April 2015. The exemption for most trusts will also increase to £5,500 for 2014/2015 and £5,550 for 2015/2016.

INHERITANCE TAX
IHT – Nil Rate Band
This will remain unchanged at £325,000 and it is intended that this remains frozen until 2019 at the earliest.

TAX AVOIDANCE
Disclosure of Tax Avoidance Schemes (DOTAS) – The Government will consult on extensions to the DOTAS “hallmarks” (the descriptions of schemes required to be disclosed) to be introduced by secondary legislation later in 2014, and proposals to strengthen HMRC’s powers to tackle non-compliance with the rules, with a view to legislating in a future finance bill.

CORPORATION TAX
Corporation tax will to fall to 20% from April 2015 as previously announced.

ISA ALLOWANCES
ISA allowances will increase from the start of the new tax year on 6 April 2014 to £11,880 of which £5,940 can be saved in cash.
However, from the 1 July 2014 the need to distinguish between the cash and stocks and shares elements will be removed, with an increased £15,000 limit bought in which can be fully invested in either cash or stocks and shares and transfers, in either direction, between cash and stocks and shares ISAs will also be allowed.
Junior ISA and Child Trust Fund (CTFs) limits will increase by £120 to £3,840 with effect from the 6 April.  These limits will increase again on the 1 July to £4,000.

OTHER SAVINGS
The 10p tax rate for savers abolished.
Cap on Premium Bonds to be lifted from £30,000 to £40,000 in June and £50,000 next year.