Following a Spring Budget geared towards the over 50s, the Chancellor, George Osborne, has used his last Autumn Statement before the general election in May to help reinforce the 'grey vote' by announcing further significant changes to your savings and the UK pensions industry.
The forthcoming changes announced open up significant opportunities for more people, which reinforces the importance of seeking financial advice. Therefore, to help you digest the new reforms, we shed light on some of the key facts, which may impact people in or facing retirement:
From April 2015:
- The ISA limit will increase from £15,000 to £15,240.
- The higher rate income tax threshold will rise from £41,865 to £42,385.
- The tax-free personal allowance will increase to £10,600.
- As previously announced, savers will be able to access their pension as they wish at retirement from April 2015. This will be subject to their marginal rate of income tax, instead of the current 55% charge for full withdrawal.
- ISA savings that are inherited by a surviving spouse from a deceased partner will retain their tax-free status. Currently, when someone dies, the savings in their ISA lose their tax-free status and their spouse/civil partner starts paying tax on that money. However, from the 6th April 2015, the surviving spouse/civil partner will benefit from an additional tax-free ISA allowance, which will cover their partner's savings.
- During the Autumn Statement, George Osborne also confirmed that the 55% 'death tax' that applies when you pass an unused pension pot on to your loved ones will be abolished. If an individual dies before the age of 75, the beneficiary will pay no tax on the funds. If the individual dies after the age of 75, the beneficiary will pay their marginal rate of income tax, or 45% if the funds are taken as a lump sum payment. From April 2016, lump sum payments will also be taxed at the recipient's marginal rate.
- To bring annuity death tax in line with drawdown, the Chancellor has also announced that the beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive income as well as lump sum payments from those policies free of any death tax. With the rules regarding who you can nominate to be a beneficiary also loosened.
- Due to the increased activity within the housing market, many had hoped that the Autumn Statement would bring good news regarding the Inheritance Tax (IHT) threshold. However, instead, George Osborne announced that he would exempt emergency workers and humanitarian aid workers from future IHT bills if they are killed in active service.
- From last night, the current Stamp Duty system has been replaced by a graduated rate, which will work in a similar way to income tax. Under the latest reforms, no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% on the portion between £250,000 and £925,000, 10% up to £1.5 million and 12% on properties over 1.5 million.
- In the 2014 Budget, the Chancellor, announced that two new government-backed bonds will be available for the over 65s. However, during the Autumn Statement, he said that savers will need to wait until the 12th December for news regarding the interest rate that the bonds will pay. We will keep you up-to-date with any further developments before Christmas.