19 March 2014 - Today, the Chancellor George Osborne announced his review of the state of government finances. He promised that, after five punishing years of low interest rates, 'Support for savers would be at the centre of this Budget'. He didn't disappoint.
In this special report, we have outlined details of the main changes which will impact savings, investments and pensions.
Radical reform of ISAs
From 1st July 2014, ISA investors will have complete flexibility over how they choose to save and invest.
- Instead of having separate allowances for cash and investments, there will be one new allowance of £15,000 each year and it will be up to you how much of this you put into cash and investments.
- Transfers between cash and investment ISAs will be fully flexible and you can move between the two unrestricted.
- ISA eligibility will be extended to peer-to-peer loans and all restrictions around the maturity dates of securities held within ISAs will be removed. The government will explore extending the regime to include debt securities offered by crowd funding platforms.
Junior ISA and Child Trust Fund (CTF) allowances increased
The limits for both Junior ISAs and CTFs will rise from £3,720 to £4,000 from 1st July 2014.
Unfortunately the date from when CTFs can be transferred into Junior ISAs was not brought forward and remains, provisionally, April 2015.
Greater freedom and choice at retirement for defined contribution pension holders From April 2015, the government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement.
- Draw down of pension income will be taxed at marginal income tax rates rather than the current rate of 55% for full withdrawals.
- The security of annuity will still be available but those who want greater control over their finances in the short term will be able to extract all their pension savings in a lump sum. Those who do not want to purchase an annuity or withdraw all their money in one go will be able to keep their pension invested and access it over time – at a time of their choosing.
- The current tax rules on pensions on death will be reviewed and will hopefully see the flat 55% charge reduced in the future.
- To help make decisions that best suit their personal circumstances, in April 2015, the government will introduce a new guarantee that everyone who retires with a defined contribution pension will be offered free and impartial face-to-face guidance on their choices at the point of retirement.
- There will be a new scheme of Voluntary National Insurance Contributions to allow pensioners to top up their Additional State Pension. It will be open for 18 months from October 2015 and available to everyone reaching state pension age before 6th April 2016.
- The minimum age that people can draw their private pension will rise from 55 to 57 by 2028.
- The 25% tax free lump sum remains.
Immediate pensions changes (from 27th March 2014):
- The amount of guaranteed pension income people need in retirement to access their savings flexibly will reduce from £20,000 to £12,000 – subject to their pension scheme rules.
- The capped drawdown limit will increase from 120% to 150% of an eventual annuity, to allow more flexibility to those who would otherwise buy an annuity.
- The size of a single pension pot that can be taken as a lump sum will increase from £2,000 to £10,000 and the number of pension pots of below £10,000 that can be taken as a lump sum will increase from two to three.
- The overall size of pension savings that can be taken as a lump sum will increase from £18,000 to £30,000.
New fixed-rate bonds for pensioners
National Savings and Investments (NS&I) will launch a choice of fixed-rate savings bonds in January 2015, for people aged 65 or over, taxed in line with other savings income. Precise details will be confirmed in the Autumn Statement, to take account of prevailing market conditions at the time, but it is thought that a one-year bond paying 2.8% and a three-year bond paying 4% (both gross) will be launched with an investment limit of £10,000 each.
EIS and VCT changes
- Seed enterprise investment schemes (SEIS) have been made permanent.
- Changes to rules for EIS, SEIS and VCTs mean that companies benefiting form Renewable Obligation Certificates or Renewable Heat Incentive schemes will be excluded.
Personal Allowance increases:
- From the start of the new tax year, the tax-free personal allowance will be increased to £10,000. From April 2015 it will rise to £10,500. It will rise in line with CPI from 2016-2017.
- The transferable tax allowance for married couples and civil partners will be set at 10% of the personal allowance from 2015-2016 (this means it will be £1,050).
- The higher rate threshold will be increased to £41,865 in the new tax year and to £42,285 in 2015-2016.
Savings income tax
The starting rate for savings income tax will reduce to 0% from 6th April 2015 and the band to which it applies will be extended from £2,880 to £5,000.
Capital gains tax
The annual CGT exempt amount will increase by 1% for 2 years to £11,000 in 2014-2015 and £11,100 in 2015-2016.
IHT remains unchanged and will continue to be frozen at £325,000 until 2017-2018.
Published on 19/03/2014