The Chancellor’s March 2014 was clearly aimed at winning the votes of savers, pensioners and those paying for expensive childcare with increases in ISA limits, a £5,000 zero rate band on savings income, more flexible pension drawdown rules and an increase in the proposed childcare tax relief to £2,000.
There was also good news for businesses with the extension of the Annual Investment Allowance until 31 December 2015 and an increase in the qualifying spend up to £500,000 from April 2014.
Here are three points which we thought you would find of interest.
This is fixed for 2014/15 at £10,000, the much promised level included in the Coalition Agreement. However the Budget on 19 March announced that there will be a further above inflation increase to £10,500 for 2015/16 in line with the allowance currently available to taxpayers aged 65 to 74. Those aged 75 and over will continue to receive a personal allowance of £10,660. Note that if adjusted net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over £100,000 giving an effective rate of 60% on income between £100,000 and £120,000 for 2014/15. Contact us for advice on planning to avoid this 60% rate.
New flexible pensions
There are significant changes being proposed which will make it easier to access your pension fund pot if you have a defined contribution (money purchase) pension scheme. As a general rule 25% of the pension fund can be taken as a tax free lump sum at age 55, although this age will be increased in future to be 10 years before State Pension age (Age 57 in 2028). Remember also that the requirement to buy an annuity at age 75 had already been abolished with the introduction of “flexible drawdown” pensions that are currently available.
From 27 March 2014 the Government are increasing the maximum amount you can take out each year from a capped drawdown arrangement from 120% to 150% of an equivalent annuity, so if the equivalent annuity rate is say 6% then up to 9% of the fund can now be drawn down each year. This is in response to concerns about low annuity rates which are linked to savings rates.
The Government has published a consultation document to consider proposals to make the drawdown rules even more flexible from April 2015 and allow you to withdraw more that the current 25% of the fund limit, subject to a tax charge. This charge would be at your marginal tax rate instead of the current penal 55% charge on the fund.
The other significant change being consulted on is the proposal to reduce the current limit of £20,000 guaranteed pension income to just £12,000 a year. Those with this level of guaranteed pension income will be able to draw as much or as little as they wish from their pension fund each year without the 150% of equivalent annuity rule applying.
Corporation tax reductions
From 1 April 2014 to 31 March 2015 the main rate of corporation tax is 21% where a company’s profits exceed £1,500,000 (divided by companies under common control). The 20% small profits rate continues to apply to companies with profits up to £300,000 (also divided as above). As previously announced a single corporation tax rate of 20% will apply from April 2015 whatever your level of profits.