Although George Osborne’s mid-year speech was overshadowed by the debate about whether it should be called the Autumn Statement or the Winter Statement, it has introduced a few relevant changes. The main points are summarised here, but this is by no means and exhaustive list.
Please do get in touch with your usual adviser if you have any queries about how these changes might affect you.
Annual contribution allowance
In a widely expected move, the annual allowance for pension contributions will be reduced from £50,000 to £40,000, starting from the 2014/15 tax year.
The allowance covers all contributions made by the individual, or made on their behalf by a company.
There is still the opportunity to contribute up to £50,000 for the current year, and next year, and the “carry forward” rules will still apply. If you haven’t used the full allowance for any of the last three tax years, you could contribute more than the allowance for a single year if you wish.
Less anticipated was the reduction of the “Lifetime Allowance” from £1.5m to £1.25m. Again this will come into effect in the 2014/15 tax year.
The Lifetime Allowance is the maximum capital value of pension funds an individual can accrue. If you exceed the allowance, a hefty tax charge is payable (currently 55% of the excess).
The move will bring more people into the scope of the Lifetime Allowance, so careful planning will be required. It will be possible to arrange to retain the £1.5m limit, but in exchange, no further contributions would be permissible. (This will be known as “Fixed Protection 2014”).
Existing Lifetime Allowance protection will continue to be valid at the protected amounts.
Limits for “income drawdown”
This is a bit technical, but from April 2011 the maximum income that could be taken from a pension fund in “drawdown” was reduced from 120% of the Government Actuarial Department’s published rate (“the GAD rate”), to 100% of the GAD rate.
It is proposed that the limit will be re-instated to 120% of the GAD rate. There hasn’t been a date specified, but it’s likely to be from April 2013.
The Chancellor has so far managed to avoid this being widely denounced as a U-turn, perhaps because it’s hard to explain in a soundbite.
We don’t yet know whether existing limits that have been reviewed in the last 18 months will be automatically revised upwards, or whether one would have to request a review.
The 2013/14 ISA contribution limit will be £11,520 (i.e. £960 a month). As usual, up to half (£5,760) may be placed in a Cash ISA, or the whole amount may be put in a Stocks & Shares ISA.
Although it’s a modest increase, ISAs continue to be a good way of saving.
There is to be a consultation on allowing AIM shares to be held within ISA accounts. This raises the possibility of making ISA investments efficient for Inheritance Tax.
Capital Gains Tax
The annual tax-free allowance for Capital Gains is set to increase to £11,000 from the 2014/15 tax year.
The Personal Allowance will increase to £9,440. However, the basic rate tax band will be reduced, meaning that higher rate income tax will be payable on taxable income over £41,450, which is lower than the current year’s threshold.
“Age-related” allowances will remain at the current levels - £10,500 for those aged 65 or over, and £10,660 for those aged 75 or over. This is in line with the Budget proposal to effectively phase out age-related allowances by bringing the general Personal Allowance into line with them.
The country is continuing to get further into debt, although the rate is apparently slowing.
Some people have suggested that the annual budget deficit is only reducing because of some adjustments to the accounting rules, and a one-off bonus from the sale of 4G network licences, but who are we to argue with the Office for Budget Responsibility.
The expectation that the country would be running a budget surplus (i.e. tax receipts higher than spending) by 2015 has been moved back to 2016, with austerity measures continuing until 2018.
The government now plans to issue Gilts with maturities of greater than 50 years. Great for the nation as borrowers, but for anyone buying them they would represent an excellent way to lose money over the long term.
10th December 2012