Personal Allowance and Rates of Tax
The Personal Allowance for taxpayers born after 5 April 1948 will be increased from £9,440 in 2013/14 to £10,000 in 2014/15, and to £10,500 in 2015/16. The personal allowance for those with ‘adjusted net income’ over £100,000 will continue at £1 for every £2 of income above £100,000. In 2013/14 the personal allowance is reduced to £Nil when adjusted net income exceeds £118,880. For 2014/15 the allowance ceases when adjusted net income exceeds £120,000. The basic rate of tax for 2014/15 will remain at the 2013/14 rate of 20%. In 2013/14 this rate applies to the first £32,010 income above the personal allowance, meaning that the 40% rate of tax applies to income above £41,450. For 2014/15 the basic rate band is reduced to £31,865 so the level at which the 40% band applies will increase to £41,865. In 2015/16, the basic rate band will be reduced further to £31,785 meaning that the higher rate of tax will apply when income exceeds £42,285.
The additional rate of tax of 45% will continue to be payable on taxable income above £150,000.
The rate of tax on dividends is unchanged. Therefore, dividend income is taxed at 10% when it falls within the basic rate band and increases to 32.5% when liable to tax at the higher rate of tax, and 37.5% when it is taxed at the additional rate.
From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased to £5,000 from £2,880, and this starting rate will be reduced from 10% to nil. The 10% rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.
Transfer of Allowances
From April 2015 married couples and civil partners, neither of whom pay tax at 40% or 45%, will be able to transfer a fixed amount of their personal allowance to their spouse or partner. The transferable allowance is set at 10% of the personal allowance in 2015/16 meaning that the amount available to be transferred is £1,050.
The transfer will not be made automatically but must be claimed online. Couples will be entitled to the full benefit in their first year of marriage.
Childcare
From Autumn 2015 tax relief of 20% of the costs of childcare, up to a total of childcare costs of £10,000 per child per year, will be available. This is worth a maximum of £2,000 per child. All children under 12 within the first year of the scheme will be eligible.
To qualify for the Tax-Free Childcare all parents in the household must:
- meet a minimum income level based on working eight hours per week at the National Minimum Wage (around £50 a week at current rates)
- earn less than £150,000 a year, and
- not already be receiving support through Tax Credits or Universal Credit.
Parents will register for the scheme on-line and open an account with NS&I. The Government will top up payments made into the account by parents at 20p for every 80p paid in.
The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.
Venture Capital Trusts and Seed Enterprise Investment Scheme
Where an individual subscribes for shares in a VCT, income tax relief at 30% of the subscription price is available. Changes will be made to the conditions applicable to the schemes from April 2014.
SEIS was introduced in 2012 as a way of encouraging equity investment in small companies. Originally introduced for a period of five years it has now been made permanent in respect of both the income and capital gains tax reliefs applicable.
ISAs and NISAs
From 6 April 2014 the overall ISA savings limit will be increased from £11,520 to £11,880 of which £5,940 can be invested in cash.
From 1 July 2014 ISAs will be reformed into a simpler product, the ‘New ISA’ (NISA) and all existing ISAs will become NISAs. The overall annual subscription limit will be increased to £15,000 with special rules applying if investments are made before 1 July 2014. Savers will be able to subscribe this full amount into a cash account instead of the current limit of 50% of the overall ISA limit, and investors will be able to transfer their investments from an existing stocks and shares account to a cash account.
Junior ISA and CTF
The annual subscription limit for Junior ISA and CTF accounts will increase from £3,720 to £3,840 from 6 April 2014. From 1 July 2014 the amount that can be subscribed to a child’s Junior ISA or CTF for 2014/15 will also be increased to £4,000.
The Government has decided that a transfer of savings from a CTF to a Junior ISA should be permitted at the request of the registered contact for the CTF. It is expected that the first transfers will be possible by April 2015.
Social investment tax relief
The Government will introduce a new tax relief of 30% for individuals investing in equity or certain debt investments in social enterprises with effect from 6 April 2014. Organisations which are charities, community interest companies (CICs) or community benefit societies will be eligible.
Pension changes
The Chancellor has announced a range of significant measures to bring greater flexibility to individuals who want to access funds in defined contribution pension schemes. Some changes to the current restrictive rules will come into effect from 27 March 2014 whilst further measures will follow in April 2015 after a period of consultation.
Pensions – immediate measures
The immediate measures come into effect from 27 March and cover four broad areas.
- Capped drawdown. An individual aged 55 or over can opt for a drawdown pension which allows them to extract amounts from the pension fund which is treated as income for the relevant year. The maximum amount of drawdown is fixed to ensure that the fund is not cleared too quickly. The cap is based on 120% of a notional annuity rate set by the Government Actuary. The cap will be increased to 150%.
- Flexible drawdown. Where an individual aged 55 or over can demonstrate that they have pension income (including the state pension) of £20,000 per annum or more they can ignore the drawdown cap and can take whatever amount they wish. Tax will be payable at their marginal rate. The income limit is to be reduced to £12,000 per annum.
- Trivial commutation. At present an individual aged 60 or over who has total pensions savings of £18,000 or below can withdraw this as a lump sum. The limit will be increased to £30,000.
- Small pots. The Government will increase the amount for small individual pension pots that can be taken as a lump sum regardless of total pension wealth from £2,000 to £10,000. They will also increase the number of small pension pots that can be taken as lump sums from two to three.
Pensions – changes to come
The Government plans to bring even greater flexibility into the pension system from April 2015. In effect an individual will be able to choose what they want to do with their defined contribution pension fund.
- If they want to draw out all of the fund on retirement they will be able to do so. The tax free element will be 25% of the sum and the balance will be taxed as income in that year.
- If they wish to buy an annuity they will be able to do so.
- If they wish to opt for a drawdown arrangement they will be able to do this without any restriction either in the form of a cap or a minimum income limit.
Two other important changes will also be made:
- pension providers and pension trustees will be required to provide free and impartial advice to all individuals approaching retirement so that they can make an informed choice of the options available to them
- the minimum retirement age for pension schemes will rise to 57 years in 2028 when the state pension age rises to 67 years.
Pension liberation
With immediate effect, a range of measures to combat schemes which are intended to encourage people to access their pension funds before they reach retirement will be introduced.