For the majority of our clients the budget was great news. Over the next few blog articles we will focus more on specific items, but for now here’s a brief summary
Ahead of next year’s General Election, Chancellor of the Exchequer George Osborne delivered a Budget that provided considerable food for thought. Focusing in particular on support for business, savers and pensioners, the Chancellor hailed the UK’s economic recovery but warned there was still more to be done.
The UK economy is now predicted to grow more strongly than previously forecast and, over the course of this year, the Office for Budget Responsibility expects the economy to expand to a level greater than its pre-crisis peak. Meanwhile, the UK’s budget deficit during 2014 is likely to be lower than envisaged at 6.6%, and is now expected to continue its decline until 2018/19, when it is predicted to achieve a surplus of 0.2%.
- The Chancellor increased the income tax personal allowance to £10,500 – a move that will reduce the typical UK taxpayer’s bill significantly. The higher-rate tax threshold will increase from £41,450 to £41,865 during the 2014/15 tax year and will rise by another 1% to £42,285 in 2015/16.
- From 1 July, cash Individual Savings Accounts (ISAs) and stocks & shares ISAs will be merged and simplified into a single ISA with an annual tax-free contribution limit of £15,000.
- The confusing 10p tax rate for savers was scrapped so now anyone with earnings and savings interest of less than £15,000 needn’t pay tax.
- The Chancellor also announced a new Pensioner Bond, available to everyone aged over 65 from January 2015. The Pensioner Bond will be offered by National Savings & Investments. We wait to see how attractive the rates will be.
Meanwhile, in what was probably the most controversial measure within the 2014 Budget, the Chancellor announced plans aimed at removing all tax restrictions on pensioners’ access to their pension pots.
- In particular, pensioners will no longer be obliged to purchase an annuity to fund their retirement. The measures will give retirees more freedom to decide how to use their pension pot but have also raised fears some individuals might fritter away their money and have to be supported by the state.
- From 2015 pension savers will be able to access their entire fund at age 55 although access will be subject to income tax. For those over 60’s who already have secure pension income of £12,000pa, they can access their funds immediately.
- The positive news for retirement planning continued with immediate changes to income limits for those clients in ‘Drawdown’. The maximum income allowed has immediately increased by 25%.
- As well as the above the definition of ‘trivial benefits’ has been dramatically changed. With immediate effect many more retirees with small funds can access their entire funds immediately.
On the wider economy, business rate discounts and enhanced capital allowances in enterprise zones were extended for a further three years. The Annual Investment Allowance was extended to the end of 2015 and doubled to £500,000. As a result, 99.8% of companies are expected to pay no tax on money used for capital investment. Export finance was doubled to £3bn and interest rates on this lending were slashed by one-third.
The combination of the above should ultimately reinforce equity markets as they see the UK economy move forward. This will have an encouraging effect on all savers and investments.
Although we will provide more details on each area over the coming weeks we would urge any and all clients who have any queries or concerns to get in touch with the team at Platinum.