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Budget 2015

You are no doubt aware that, last week, Chancellor George Osborne delivered his final Budget before this year’s General Election.

As always, we will discuss any effects on your financial plans at your next review, or we will be in touch sooner if we feel that any immediate action should be considered.

The main changes that may affect you are as follows:

Taxation

– For 2015/16, the personal allowance will be £10,600 and the higher rate threshold will be £42,385, as announced last December.

– These will increase to £10,800 and £42,700 respectively, in 2016/17. Basic rate taxpayers will be better off by £40. Higher rate taxpayers will be £103 better off.

– In 2017/18 they will increase further to £11,000 and £43,300. Basic rate taxpayers will be better off by a further £40. Higher rate taxpayers will be a further £160 better off.

– Mr Osborne reaffirmed his commitment to eventually achieving a higher rate threshold of £50,000.

– Tax returns are to be replaced by digital tax accounts that will work “just like an online bank account.” Further details have yet to be revealed on exactly how this will work.

ISAs

– As previously announced, the subscription limit for 2015/2016 will be £15,240 The full limit can be invested into cash, stocks and shares or any combination of the two.

– As announced in the Autumn Statement, ISAs may retain their tax-free status when passed to a spouse or civil partner following death. From 6 April 2015, a surviving spouse or civil partner of an ISA account holder will benefit from an additional allowance equal to the value of their deceased spouse or civil partner’s ISA holdings. This applies to deaths on or after 3 December 2014.

– Withdrawals from cash ISAs will be able to be paid back to the account before the end of the same tax year, without reducing the investor’s subscription limit further.

– A ‘Help to Buy ISA’ will be launched during Autumn 2015. This will enable savings of up to £200 per month, plus an initial £1,000 towards a first home. The Government will boost savings by 25% (up to £3,000, turning £12,000 saved into £15,000) with the boost paid when a property is purchased.

Savings

– It was announced that In addition to ISAs, the first £1,000 of savings interest each year will be tax-free (for basic rate taxpayers) from April 2016.

– For higher rate taxpayers, this threshold is reduced to £500 per year.

– This allowance is not available to additional rate taxpayers.

Pensions

– The lifetime allowance will remain at £1.25 million for 2015/2016.

– It will however be reduced to £1 million for 2016/2017 and 2017/2018. There will be a new round of transitional protection, for those with pension rights already worth over £1 million. So far no further details have been provided of how this protection will work.

– The lifetime allowance will then be index-linked in line with the consumer prices index (CPI) from 2018/2019.

– The annual allowance will remain at £40,000 for 2015/2016 and there are no plans at present to alter this.

– There will be no change to tax relief for member contributions, which will continue to be based on the individual’s highest marginal rate.

– It is proposed that from April 2016, annuitants will be able to sell their annuity to a commercial third party, without incurring the punitive tax charges that would currently apply.

Inheritance Tax

– No changes were announced regarding the current rates, thresholds or exemptions

– It was however announced that there would be a consultation on the use of Deeds of Variation, which are often used after an individual’s death to legally alter the Will in order to pay beneficiaries in a more tax-efficient way.

In conclusion, this was a far less surprising Budget than last year’s, with some welcome news for savers and first time buyers, and some less welcome news for those with larger pension pots.

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