What the 2015 Summer Budget means for your savings and investments

Pensions

The biggest news from the Budget in terms of savings and investments, was that the government has launched a consultation on whether there is a case for reforming pensions tax relief to strengthen incentives to save, or whether it would be better to keep the current system. The consultation paper can be found here. Chelsea will submit a response in due course. The government would also welcome responses from individuals, so please do respond yourself if you have any strong views.  

Also:

• Following the launch of Pension Wise in April 2015, the government is extending access to this free and impartial guidance service to those aged 50 and above, and is launching a comprehensive nationwide marketing campaign to further raise awareness of the service.
• The government will consult before the summer on options aimed at making the process for transferring pensions from one scheme to another quicker and smoother, including in relation to any excessive early exit penalties. If there is evidence of such penalties, the government will consider imposing a legislative cap on these charges for those aged 55 or over.
• The government will set out plans for a secondary annuities market in the autumn, and agrees with respondents to the recent consultation that implementation should be delayed until 2017 to ensure there is an in-depth package to support consumers in making their decision.
• As announced in the Autumn Statement 2014, the government will reduce the 45% tax rate that applies on lump sums paid from the pension of someone who dies aged 75 and over to the marginal rate of the recipient from 2016-17.
• As already announced, the government will reduce the Lifetime Allowance for pension contributions from £1.25 million to £1 million from 6 April 2016. Transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective. The Lifetime Allowance will be indexed annually in line with CPI from 6 April 2018.

Investments

Dividend taxation to be simplfied:

• The government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

ISAs:

• The government will introduce the Innovative Finance ISA, for loans arranged via a 'peer-to-peer' platform, from 6 April 2016 and has today published a public consultation on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.
• The government will change the ISA rules in the autumn to allow individuals to withdraw and replace money from their cash ISA in any one tax-year, without this replacement counting towards their annual ISA subscription limit. This policy will also cover cash held in stocks and shares ISAs. These changes will commence from 6 April 2016.

Venture Capital Schemes:

Subject to state aid approval, and with effect from Royal Assent to the Summer Finance Bill 2015 the rules around eligible investments for VCTs and EIS will be changed as follows:

• All investments must be made with the intention to grow and develop a business
• All investors must be ‘independent’ from the company at the time of the first share issue
• The introduction of new qualifying criteria to limit relief to investment in companies that meet certain conditions demonstrating that they are ‘knowledge intensive’ companies within 10 years of their first commercial sale, and other qualifying companies within seven years of their first commercial sale; this will not apply where the investment represents more than 50% of turnover averaged over the preceding five years
• The introduction of a cap on the total investment a company may receive through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) of £20 million for knowledge intensive companies, and £12 million for other qualifying companies
• An increase in the employee limit for knowledge intensive companies to 500 employees
• The introduction of new rules to prevent EIS and VCT funds being used to acquire existing businesses, including extending the prohibition on management buyouts and share acquisitions to VCT non-qualifying holdings and VCT funds raised pre-2012, and preventing money raised through EIS and VCT from being used to make acquisitions of existing businesses regardless of whether it is through share purchase or asset purchase
• The government will remove the requirement that 70% of Seed Enterprise Investment Scheme (SEIS) money must be spent before EIS or VCT funding can be raised for qualifying investments made on or after 6 April 2015.
• The government will continue to monitor the use of the SEIS, EIS and VCT for investments in community energy organisations benefiting from subsidies for the generation of renewable energy to ensure that support for community energy through the venture capital schemes provides good value for money for the taxpayer and is not subject to misuse.

Savings

Personal Savings Allowance:

• The Personal Savings Allowance will be introduced in April 2016, which will exempt the first £1,000 of savings income from tax for basic rate taxpayers and the first £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance. Automatic deduction of 20% income tax by banks and building societies on non-ISA savings will cease from the same date and the government will shortly publish a public consultation on whether changes are required to the deduction arrangements in place for other savings income.

Help to Buy: ISA:

• From 1 December 2015, first time buyers will be able to deposit £200 per month into their Help to Buy: ISA at participating banks and building societies. First time buyers will be able to open their Help to Buy: ISA accounts with an additional one-off deposit of £1,000 so that they can start saving now.

Other

Inheritance tax
Some good news concerning inheritance tax:

• The government will take the family home out of inheritance tax for all but the wealthiest with a new transferable nil-rate band, introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21. It will then increase in line with CPI from 2021-22 onwards.
• This is in addition to the inheritance tax nil-rate band, which is set at £325,000 for the estates of individuals. This creates an effective £500,000 inheritance tax threshold for estates in 2020-21. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner and means the effective inheritance tax threshold will rise to £1 million in 2020-21.
• The new main residence nil rate band will also be available when a person downsizes or ceases to own a home on or after 8th July 2015 and assets of an equivalent value, up to £175,000 in 2020-21, are passed on death to direct descendants.

Government sale of stakes in companies:

• For those of you interested in individual stocks, over the course of this Parliament, the government will:
• Dispose of at least three-quarters of its stake in RBS (starting with a sale in the coming months)
• Launch a further Lloyds Banking Group share sale which will be open to retail investors in the next 12 months
• Complete the sale of its remaining 14% shareholding in Royal Mail by the end of 2015-16, subject to achieving value for money

Buy-to-let tax relief cut:

• This Budget wasn't good for buy-to-let investors.
• The government will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. The restriction will be phased in over four years, starting from April 2017.
• Currently, landlords of furnished properties can deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure. This means landlords can reduce their tax liability even when they have not improved the property. From April 2016, the government will replace this allowance with a new system that enables all landlords of residential property to only deduct costs they actually incur.