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Our roundup of the Budget 2015

Our roundup of the Budget 2015

In what was the last Budget before the May General Election, the Chancellor had promised “no gimmicks”. What we did get was a Budget that introduces positive changes for savers and investors, such as confirmation of the extension of pension freedom to those who have already bought an annuity, but which also left a bitter taste in the mouth as once again the pension Lifetime Allowance was reduced. There were no major changes to rates and allowances for Income tax, Capital Gains tax nor Inheritance tax.

The key changes are detailed below, so please read on to find out more.

INVESTMENT AND SAVINGS

ISAs

As previously announced, from April 2015 ISA allowances will increase to:

  • ISA - £15,240
  • Junior ISA - £4,080

Children with existing Child Trust Funds will also be able to transfer these investments to Junior ISAs from April 2015, which will provide far wider investment options for these children.

Today, the Chancellor also announced that from autumn 2015 individuals will be able to withdraw and replace money from their Cash ISA in the same tax year without it affecting their annual ISA subscription limit.  We await clarification on whether this will be available for Stocks & Shares ISAs.

From autumn 2015 a new ‘Help to Buy ISA’ will be introduced for people saving to purchase their first home. Accounts can be opened with an initial deposit of up to £1,000 and will be available through banks and building societies.  Up to £200 a month can be saved in the account, and for every £200 saved the Government will add a bonus of £50 (capped at a maximum of £3,000).  The bonus will be available on home purchases of up to £450,000 in London and up to £250,000 outside of London, and will be paid when the house is purchased.

Pensions

The Lifetime Allowance for pensions will reduce from £1.25 million to £1 million from April 2016, and the Allowance will be indexed from 2018 in line with CPI.  Transitional protection will also be available. Tax-free cash remains at 25% of the pension fund, and capped at 25% of the pension Lifetime Allowance. The Annual Allowance will remain unchanged at £40,000 and pension savers will continue to receive marginal rate tax relief on their contributions.

Annuity freedoms

From April 2016 the Government will remove the restrictions on buying and selling existing annuities, allowing pensioners to sell the income they receive from their annuity to a third party without unwinding the original annuity contract.  This flexibility builds on the pension freedoms that come into effect on 6 April. Pensioners can take their money as a lump sum, or place it into drawdown to access the proceeds more gradually.  The payments will be taxed at the pensioner’s marginal rate.  The Government has launched a consultation on the measures that are needed to establish a market to sell and buy annuities.

TAXES

Tax Returns

During the next Parliament, end of year Tax Returns will be abolished in favour of real-time online tax accounts.  Further details will be published later this year.

Income Tax

The 2015/16 personal allowances and tax bands are as follows, and tax rates remain unchanged:

 

2015/16

Tax Rate

Personal Allowance

£10,600

Zero

Basic Rate Band

£31,785

20%

Higher Rate Threshold

£42,385

40%

Additional Rate Threshold

£150,000

45%

The transferrable allowance for married couples will rise with RPI to £1,100 in 2015/16. This is only available to basic rate taxpayers.

The personal allowance will increase to £10,800 by 2016 and to £11,000 by 2017, and the higher rate threshold will increase to £42,700 in 2016/17 and £43,300 in 2017/18.  Thereafter, increases in the higher rate threshold are projected to rise above inflation.

Personal Savings Allowance

From April 2016, a tax-free Personal Savings Allowance of £1,000 (or £500 for higher rate taxpayers) will apply on the interest that you earn on your savings.  This measure could reduce tax by up to £200 a year.

To be eligible for the £1,000 Personal Savings Allowance, taxable income must be less than £42,700 a year, and to be eligible for the £500 allowance, taxable income needs to be between £42,701 and £150,000 a year. Additional rate taxpayers will not benefit.

Because so many people will no longer pay tax on their savings, the automatic deduction of 20% tax by banks and building societies on interest payments will also cease from April 2016.

Inheritance Tax

A review will be undertaken on the avoidance of Inheritance Tax through the use of deeds of variation for Wills. A report will be released by autumn 2015.

And finally

Ben Seager-Scott, Director of our Investment Office, has also produced a macroeconomic review of the Budget 2015.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

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