There were no major shocks during the Chancellor’s Autumn Statement this year but some welcome changes to the current pension and ISA ‘death tax’ system which open up fantastic inheritance tax planning opportunities. Effective financial planning, however, will be more critical than ever.
Other announcements include continued measures to clamp down on tax avoidance (nil rate band trusts beware), a slight adjustment to income tax bands, and UK Stamp Duty Land Tax following Scotland’s lead.
And there was welcome news for small businesses – the government will review business rates for the first time in 400 years!
Pension and ISAs – no more ‘death tax’
As of April 2015, the tax charge of 55% on lump sum death benefits from pensions will be abolished. Savers dying before the age of 75 will now be allowed to pass on their pension funds to a beneficiary free of tax, regardless of whether they have accessed the pension for income or not.
Where a pension saver dies after the age of 75, the beneficiary will be able to draw from the pension immediately and will pay tax at their own marginal rate.
In addition, ongoing income payments from a joint life annuity (or an annuity with a guarantee period) will now be paid tax free where the annuitant dies before age 75.
A smaller, but none the less still welcome announcement is that tax relief on pension contributions made by the over 75s, which was under review, will stand.
There was also a surprise announcement that spouses (and civil partners) can now pass their ISA savings on to the survivor with the valuable ISA ‘tax wrapper’ still attached. Previously this wrapper, which gives valuable tax savings, was lost on transfer.
Tax avoidance and trusts
In a bit of a U-turn the government confirmed that it has scrapped plans to change how trusts are taxed. The will to reform, however, remains, so watch this space…
Other measures to tackle tax avoidance include increasing tax on non-domiciled individuals, and increasing the corporation tax rate for UK based multinational corporations on revenue that they divert overseas (currently being dubbed the ‘google tax’).
Stamp Duty Land Tax
The rest of the UK has followed Scotland’s lead with a change to a more progressive tax on property transactions. Anyone purchasing property with a value of less than £937,000 will be better off, which they say is 98% of households.
However this does now put Scotland at a disadvantage when compared to the rest of the UK.
Under Scotland’s new Land & Buildings Transaction Tax (LBTT) there is a slightly higher threshold of £135,000 before tax is payable (for the rest of the UK it is £125,000), so anyone purchasing a home with a value of less than £255,000 is better off in Scotland. Beyond £255,000 they are better off in the rest of the UK.
Will the Scottish government re-think prior to April?
There is a commitment to increase income tax personal allowance to £12,500 starting with an increase to £10,600 in April 2015.
There will also be an increase in the income tax ‘higher rate tax band’ from £41,865 to £42,354 from April 2015.
To make the most of the opportunities available good advice and effective planning will be essential.
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