George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more

(Time Sensitive): Tax Year End Changes for Pension Allowances

The start of the new Tax Year on 6 April 2014 – just 6½ weeks away at time of writing – will see two very important changes in relation to pensions allowances.

The first change will affect the ‘Annual Allowance’ (or ‘AA’) which is the annual limit on pension savings attracting tax relief. This limit will be reduced from £50k to £40k (having been as high as £255k back in 2010/11) and includes contributions made by anyone into your pension whether that’s you or your employer. Should your pension savings be greater than this amount then you will have to pay a tax charge and include such information on your Self Assessment tax return. A calculator is available to work out whether you have any unused annual allowance available, this being particularly useful because you are eligible to carry forwards any unused allowance if it exists from the 3 previous tax years. If present the unused allowance can be used to offset against any tax charge.

The second change will affect the ‘Lifetime Allowance‘ (or ‘LTA’) which is the amount payable from a private and/or work pension scheme (excludes State pension) before tax also becomes payable. Having already recently been cut from £1.8 million the LTA is currently set at £1.5 million but will be reduced to £1.25 million from 6 April 2014. The LTA is only applied to pension savings when you actually take your pension benefits, or at certain key events such as reaching the age of 75. Other examples of applicable key events are explained here. Read more