Darren’s Budget Update 2015
The final budget of this parliament saw the Chancellor reveling in some of the economic successes that have come to fruition during his tenure. However, behind all the pantomime lay some huge changes relevant to our clients. I have started with ISA’s because this really affects all of our Thomas and Thomas clients.
ISA’s Crowned King Again………..
You might have been forgiven for thinking that the Chancellor had overlooked ISA investments, instead favoring his new pension baby. However, some dramatic alterations to ISA’s show his intent in backing this crucial tax planning tool. Here they are……
Additional Permitted Subscription Rules:
Sounds boring, but this is the biggest news in our view. Upon dying, our clients always lost all of their ISA allowances. This meant that their surviving spouse would inherit the investment funds unwrapped without all of those hard earned tax wrappers – we always found this extremely frustrating for our clients. However, from April this year, the surviving spouse or civil partner can pick up all of the ISA allowances and can even transfer them to another provider if they wish. This rule has even been rolled back retrospectively to December 2014 – so make sure that you tell any recently bereaved widow/ widowers NOT to cash in the ISA wrappers at probate without getting professional financial planning.
Use it but don’t lose it!
From the autumn of this year, you will apparently be able to withdraw money from your ISA and then put it back in again under that allowance in future if you wish. This is a huge development as investors have traditionally known that money taken out of their ISA cannot be replaced. We await more detail on this area as we are unclear if this just relates to cash ISA’s at this stage.
Help to buy:
The Chancellor was keen to prove that ISA’s are for everyone by launching a new ‘help to buy ISA’ which encourages savers to build up a house deposit via a cash based ISA product – if they are a first time buyer. They can save up to £200 per month which will be topped up by a further £50 per month by the government. This works by the government giving up to £3,000 at the point of house purchase if the individual has saved £12,000. The rules on this are that two people can save for the same house deposit individually and get two allowances. However, you have to purchase a house under £450,000 in London and £250,000 elsewhere in the UK – and you can’t have a ‘help to buy ISA’ alongside a cash ISA.
Those who have followed our ‘Buried Treasure’ series will know that the Chancellor has a love affair with pensions – in particular ‘freeing them up’ to be more accessible in retirement. He added a few tweaks on Wednesday though. Here they are.
The government have noticed that over 2/3rds of the pension tax relief claimed each year is made by higher and additional rate tax payers. This amounted to a whopping £34.3 billion in tax relief coming out of the public purse in 2013/14. To this end, he will reduce the lifetime allowance to £1 million from April 2016. Interestingly the annual allowance remains the same at £40,000 and you can still claim higher rate tax relief.
Sell your annuity:
This is big news and very much in keeping with the Chancellors dislike of annuities. From April 2016, anyone already receiving an annuity should be able to sell it to a company in exchange for a lump sum. Notice the word I used ‘should’. This will be an interesting area to watch as we wonder how much fair value annuitants will receive under this scheme.
Watch out! The Deed of variation is under scrutiny with a full review planned for the autumn. This incredibly valuable law has always allowed a beneficiary to alter a deceased person’s will within two years if they wish to redirect benefits. This has often really helped to save Inheritance Tax with some careful planning after the event of death. The review could close this loophole meaning that people will need to be a lot more forward thinking in future. If you currently are considering a deed of variation – it may be sensible to make it.
As with all of our budget articles, please don’t rush to do things without first taking qualified financial advice. The rules are often fuzzy at this stage with the devil being in the detail. If you are unsure about anything at all – please contact us straight away.