Following on from our previous post on the 2014 Budget, our senior accountant Rob Flint fills us in on what the personal tax changes could mean for you and the economy…
1) ISA’s – ISA’s provide an excellent opportunity for savers to shield their savings from the tax man. The investment limit will raise by an amount well above the level of inflation (25%), the rules on type of investment have been relaxed and we encourage those with savings, if they are able to do so, to use this ‘use it or lose it annual allowance’ whenever they can. It is also worth noting that the amount that can be invested in Children’s ISA’s will increase from £3,720 to £4,000 on 1 July 2014.
2) Personal Tax Allowance – The increase in PA will mean that no tax is payable on the first £10,500 of an individual’s salary. It is estimated this move will lift an additional 288,000 people out of paying income tax, taking the total number to 3.2million altogether. The PA is another example of a ‘use it or lose it’ allowance as it cannot be carried forward or backwards to other tax years and we would advise each individual to arrange their tax affairs in a manner that makes best use of the allowance.
3) Inheritance Tax – This levy has a threshold of £325,000 in 2013/14 and is payable at 40% on the amount over the threshold. It is currently unclear on what professions fall under the umbrella of ‘emergency service worker’ however, this move seems appropriate for those unfortunate to find themselves in this position.
4) Pensions – Whilst the removal of the requirement to buy an annuity will offer greater flexibility to invest in alternative vehicles to provide a retirement income (as well as mitigating the complexity of purchasing an annuity in the first instance) retirees must consider all risks and benefits of the options open to them.
Currently you may draw 25% of your pension pot tax free from the age of 55. Any withdrawals above this rate are subject to a tax charge of 55%. Any tax charge reduction is welcome but care must be taken to ensure that adequate provision remains for the remaining years of the pensioners’ lifetime.
With so much stepped change in the pension industry there are many people with numerous small (trivial) pension pots which are not suited to anything but claiming in full, at the age of 60 or above, of which 25% is tax free. The raising of this threshold is long overdue.
5) Premium Bonds – Premium bonds offer the opportunity to win tax cash prizes each month. With no changes to the top prize in over a decade these changes were long overdue. Savers have been hit particularly hard in recent years, so it is anticipated that there will be an influx of funds into both Premium Bonds and the new range of Bonds for people aged over 65 which was also announced. Care must be taken however as Premium Bonds offer no guarantee of a return.
Please note, the comments above are for general guidance only and should not be interpreted as law. We encourage all individuals and businesses to seek advice from professionals who can provide assistance on your own specific circumstances. If you’re looking for financial advice following the Budget, or want more information on how the changes will affect your personal finances, give MCC a call. Our team of Manchester chartered accountants can give you the advice and support you need. Get in touch on 0161 707 1500 or send us a message using our contact form.
Stay tuned later this week for Rob’s take on the changes to business tax…