This year’s Budget sees no changes announced to the headline rates of income tax suffered by individuals but there was a focus on attaining the £10,000 personal allowance threshold for the 2014/15 tax year. The impact of increasing the personal allowance and reducing the level at which higher rate tax becomes payable will result in more people suffering some higher rate tax in the future.
A corporation tax rate of 20% from 2015 will also add further competitive edge to the Governments plan of enticing inward investment for new and existing businesses into the UK.
The IHT threshold will be frozen at £325,000 until 2018 to offset the new social care cost provisions following the Dilnot recommendations. The £72,000 cap on social care costs and enhanced means testing cap to increase to £118,000 (currently £23,250) is welcome but may not please everyone, as it does not include potentially uncapped ‘hotel costs’ such as food and board, but does provide an opportunity for planning to be established and a level of certainty.
From a pension perspective, the Chancellor did not make any further reductions to the Annual Allowance and Lifetime Allowance (LTA) announced in the Autumn Statement. The Lifetime Allowance, as we have shown, can penalise good investment growth. The Government has estimated that around 360,000 people may be potentially impacted by this reduction, we believe this could be vastly underestimated.
Continued focus on reducing tax leakage as well as protecting and maximising client allowances will remain key. Additional retirement planning strategies may well need to be considered for clients impacted by the reduction of the LTA, as well as those high earners who can make pension contributions which will enable them to regain their personal allowance and potentially benefit from 60% margin relief by reducing their net adjusted earnings below £100,000.
Source: Rachael Griffin, Head of Technical Marketing at Skandia provides a high-level summary of some of the key aspects from the recent Budget.
