Chancellor George Osborne unveiled his 5th Budget amidst signs of growing levels of confidence in the UK’s economic condition. Driving home the message that the economy is recovering faster than forecast, he announced that the Office for Budget Responsibility had revised its economic growth forecast upwards from 2.45 to 2.7% for 2014. The Chancellor also revealed some significant personal tax measures, pension changes and turned his attention to the plight of UK savers.
Income Tax Individual taxpayers are set to benefit from a further increase in the basic income tax personal allowance, which will rise to £10,500 with effect from 2015.
Whilst the reduction of the annual allowance to £40,000 and lifetime allowance to £1.25m from 6th April 2014 were already known, there were key announcements regarding how individuals can access their pension benefits. Effective from 27th March 2014:
- Reduce the minimum income requirement for flexible drawdown to £12,000.
- Increase the maximum income limit that a capped drawdown pensioner can choose to receive to 150% of the “basis amount”.
- The “small pot” threshold will be increased to £10,000. * The number of personal “small pots” that can be taken will be increased to 3.
- The threshold for trivial commutation will be increased to £30,000.
Furthermore, from 6th April 2015, those in a defined contribution scheme will, from age 55, be able to choose from 3 options. The access to a tax-free lump sum at retirement will continue, but thereafter the retiree can choose:
- Any income taken over and above the tax free lump sum can be drawn without limits and will be taxed at the retiree’s marginal rate for income tax.
- To go into drawdown under the new limits as above.
- To buy an annuity.
Savings & Investments
The Chancellor also unveiled the creation of simpler ISA rules with the stocks & shares and cash ISA components set to be merged and the ISA subscription limit being raised to £15,000 from 1st July 2014. ISA savers will be able to subscribe this full amount to a cash account (currently only 50% of the overall ISA limit can be saved in cash) and will also be able to transfer their investment from a stocks & shares to a cash account and vice versa.
From 1st July 2014, the amount that can be subscribed to a Junior ISA or Child Trust Fund in 2014/15 will be increased to £4,000.
From April 2015 the 10% savings rate will be reduced to 0%. The government will also increase the band of savings income that is subject to the 0% rate to £5,000.
Please note that this is based on our current understanding of the announcements but could change as we are awaiting the detail to be released.