There have been few surprises in the last Budget before the election. The major points of note for Wise Investment and our clients are changes to pensions and ISAs.
Once again, in April 2016 the Lifetime Allowance will be reduced from £1.25 million to £1 million. This means when you take pension benefits, anything you have saved in your pension that exceeds £1 million will be taxed at 55% if taken as a lump sum or 25% in addition to your marginal rate if taken as a regular income.
It is expected that transitional protection will be available to those whose total pension value is already in excess of the £1 million limit, which will allow them to keep the £1.25 million lifetime allowance. We will be in touch with all of our clients who expect to be affected by this change in the next few months with more information.
Returning to the trend for increased pension freedoms, it has now been proposed that from April next year it will be possible to sell annuities. This means anyone already in receipt of an annuity income will be able to sell their interest on to a third party, with the prior agreement of the annuity provider. The aim of this is to give more people access to flexibility of pension income, even if you have already bought an annuity.
From autumn this year, it is planned that savers will be able to withdraw money from a cash ISA and then replace it within the same tax year without using part of the ISA allowance for that year. For now this is only going to be available for cash ISAs, not stocks and shares ISAs.
It has also been announced that Help-to-Buy cash ISAs will be made available in the autumn to those saving for a deposit for their first home. The scheme will give a government bonus of 25% on savings up to £12,000, so the saver will have £15,000 to put towards their first house purchase. To be eligible for the bonus, the saver can open the ISA with an initial sum of up to £1,000 then make monthly contributions of up to £200. The bonus will only be added to the value upon the purchase of a house and the house must cost less than £250,000 (or £450,000 in London). It is worth noting that only one cash ISA can be opened per person in any given tax year, but more than one person using the scheme can purchase the same house.
We’re not yet certain how the new flexibility rules will work in relation to the Help-to-Buy ISA, but hopefully this will be clarified before the autumn.
Other Changes to Note
NS&I 65+ Bonds
Due to popularity and demand, the NS&I 65+ bonds that were released in January will remain on sale until 15th May this year.
Personal Savings Allowance
From April 2016, basic rate tax payers will not pay any tax on the first £1,000 of interest on cash savings. For higher rate tax payers this applies to the first £500, but additional rate payers will not benefit from this relief.
From next year the annual tax return will be replaced by online accounts, which will allow tax payers to see and manage their affairs digitally. The aim and likely result is to simplify the tax return process for most tax payers who currently complete the self-assessment form.