Chancellor George Osborne revealed his 2013 budget plans this week, but what does it mean for you? How will it affect your future finances?
To help you digest the information, we have highlighted some of the key facts, which may impact on people in or facing retirement:
- New Personal Allowances and higher rate tax threshold
George Osborne has announced that the personal allowance will rise to £10,000 by 2014. The threshold for income tax is currently £8,105; rising to £9,440 on April 6 this year, however, the point at which people will start paying higher-rate income tax will be lowered to £41,865 in April 2014.
- Age related allowance remains frozen
As a way of simplifying the tax code, George Osborne announced that as well as increasing the personal allowance, he would freeze and work to remove the age-related allowances.
The Over-65s already receive a tax allowance of £10,500 up to age 74 and £10,660 after that. From 5 April 2013, those allowances, which only benefit pensioners with an income below £29,000, will be frozen.
- Introduction of flat rate State Pension being brought forward from 2017 to 2016.
The Government is bringing forward plans to introduce a flat-rate state pension by a year. The new the single flat rate pension of £144 per week was due to be introduced in 2017, but will now begin from April 2016.Under the planned pensions transformation, people of state pension age will get a 'flat-rate' pension as long as they have paid at least 35 years of NICs. The Government claims that the new plan will prevent working mothers being penalised for taking a break to raise children.
- Confirmation that maximum drawdown has been increased back up to 120% of GAD.
Drawdown savers, who saw income slashed by up to half, have been handed a lifeline by George Osbourne. The Chancellor has reversed a controversial plan introduced 18 months ago. The budget announced that those in drawdown plans would be able to take up to an extra 20 per cent income from their pension pot. This will affect around 400,000 pensioners, who have opted to keep their pension fund invested and draw an income from it, rather than buying an annuity. The move back to 120 per cent will mean a 65 year old with a £250,000 pension pot could see his maximum drawdown income increase from £13,250 to £15,900.
- IHT nil rate band frozen until 2017/2018
In 2012, the Government announced that the nil rate band for inheritance tax would be frozen at £325,000 until April 2015. It has now been announced that it will remain frozen at this level until April 2018, in order to help pay for the cap on ‘reasonable care costs’ of £72,000 for older people from April 2016.
- State pension increasing by 2.5% from April 2013.
As mentioned previously in the Autumn statement, the government has announced that the basic state pension will increase by 2.5% to £110.15 per week from April 2013. As a result, pensioners will see a £2.70 increase in the basic state pension in 2013/14.
- Consultation on allowing some element of residential property within a SIPP.
Savers who run their own pension funds may be allowed to invest in residential property for the first time. Self-invested personal pensions or SIPPs give investors the ability to choose their own pension investments. However, not all types of investment are allowed. The Government are now considering a relaxation of the rules to allow unused commercial property to be converted to residential use within a SIPP.
If you have any questions regarding the forthcoming tax and benefit changes, please feel free to contact Retirement and Investment Solutions.