George Osborne unveiled this parliament’s final Autumn statement yesterday, which included several changes to ISAs and further details of the proposed shake-up of pension rules announced in the most recent budget.
So what are the main changes expected to take place in April 2015 and what do they mean for our clients?
ISAs
- As of April 2015, the annual ISA allowance will increase from £15,000 to £15,240 meaning more money can be saved tax free. Whilst this is useful it is only an inflationary rise.
- More importantly, effective immediately ISAs become transferrable to a spouse or civil partner upon death. The tax advantages within the wrapper are retained when inherited and will have no impact on the recipient’s own ISA allowances. This would also be free of Inheritance Tax due to the spousal transfer exemption.
Pensions
- The freedoms announced in the budget were explained in more detail, including a change to the tax treatment of survivor’s annuities, which will be payable free of income tax if the original annuitant dies before age 75. This is comparable to the treatment of income drawdown and will begin in April 2015.
- On death after age 75 the proceeds of a pension will be paid less income tax at the recipient’s own tax rate. There will be the flexibility to control payments and for the 2015 tax year only, if the plan is taken as a lump-sum it will be subject to a one-off 45% tax charge.
- Once a pension has entered “flexi-access drawdown” the annual allowance (the maximum that may be contributed to a pension in each tax-year) will reduce from £40,000 to £10,000.
- The basic state pension will rise 2.5% to £115.95 per week under the “triple-lock guarantee”. The starting amount of the “flat-rate state pension”, only payable to those retiring on or after 6th April 2016, has been updated to £151.25, and the final figure will be announced next Autumn.
Personal taxation
- The tax-free personal allowance will rise to £10,600 in April 2015 from £10,500 for those born after 5 April 1938. The personal allowance for those born before 6 April 1938 will continue to be £10,660. This further narrows the gap, which will lead to the eventual removal of the higher age personal allowance.
- The starting point for higher-rate tax is increasing in April from £41,865 to £42,385. On the face of it this should mean fewer higher-rate taxpayers, but the increase is only 1.2%.
- From April 2015 basic-rate taxpayers can take advantage of up to £1,060 of their spouse’s unused personal allowance. This “married couples allowance” may help households where one person is not working or working part-time.
- Stamp duty land tax is being reformed and will now be charged in tiers as opposed to on the whole value of the property. For property purchases up to £1M the tax is broadly comparable, but becomes significantly higher than the old regime as the property value increases. The change is in effect from today.
Other areas
- The proposed “Inheritance Tax Settlement nil-rate band” has been scrapped after being branded unworkable by experts. The intention was to prevent tax avoidance using multiple trusts and the government intends to pursue this through other methods to be announced in next week’s finance act.
Conclusion
- The team at Hunter Aitkenhead is pleased to see more “meat on the bones” following the sweeping changes announced in the world of pensions, and we feel that the new regime will allow for far more flexibility in estate planning, with pensions taking a central role.
- We are pleased to see that survivor’s annuities are having their tax treatment improved, which will make a real difference for many clients.
- The only real surprise in the Autumn statement was the relaxation of ISA rules in terms of inheritance, which is a vast improvement, although it does not bring any estate planning opportunities as the ISAs will still need to be liquidated on the death of the spouse.
- If you would like to discuss yesterday’s proposals and how they may affect you please do not hesitate to get in touch with us.
