We have summarised below the key points announced in the 2014 Autumn Statement. The statement contained a lot of detail on the performance of the UK economy and the deficit, but the purpose of this summary is to make you aware of the key points that affect financial planning.
The ISA allowance is going to increase from £15,000 to £15,240 on 6th April 2015.
The Junior ISA allowance is going to increase from £4,000 to £4,080.
The most interesting announcement concerning ISAs came as a surprise. Effectively, it will be possible for an ISA to be transferred to a spouse or civil partner on death. Under current rules, the ISA benefits of the deceased’s ISA investments end on death. Under the new rules, the surviving spouse will inherit the tax benefits of the deceased’s ISA, in the form of an increased ISA allowance. The Inheritance Tax position is unaffected, as there is no Inheritance Tax between spouses.
HMRC have announced that although the investments will lose their ISA status on death, the investments can be transferred “in specie” into a new ISA, using the survivor’s increased ISA allowance. The reason for this is to prevent any issues with having to amend Wills, as what happens to the assets themselves on death will be determined by the Will, which will not necessarily leave the assets to the spouse.
Income Tax & Capital Gains Tax
The Personal Allowance will increase from £10,000 to £10,600 from 6th April 2015.
The starting rate of income tax applies to savings income only, for example bank interest. The current rate is 10% and applies to £2,880 of savings income above the Personal Allowance. From 6th April 2015, the savings rate will be reduced to 0% and will apply to £5,000 of savings income above the Personal Allowance.
This means that the first £15,600 of savings income will be tax free, a significant increase, as currently only the first £10,000 is tax free. This can also be used to reduce avoid the tax when making chargeable gains on Capital Investment Bonds (non-qualifying life assurance policies).
The higher rate tax threshold will also be increasing, meaning that it will apply to income in excess of £42,385.
The increase in the Personal Allowance to £10,600 will have a negative impact on high earners, as every £2 of income over £100,000 will result in the loss of £1 of Personal Allowance. An effective 60% marginal rate of tax therefore applies on income from £100,000 to £121,000.
The annual tax free allowance for Capital Gains Tax will increase from £11,000 to £11,100.
The Basic State Pension will be increasing by £2.85 per week to £115.95 per week.
Spouse’s pensions payable from annuity contracts will be tax free if the annuitant dies before age 75, but will be taxed as income on the widow if the annuitant dies after age 75. This brings the taxation of annuities in line with death benefits under drawdown. However, spouse’s pensions under final salary schemes will not benefit from this change.
Stamp Duty has been completely overhauled. Rather than the percentage rates applying to the entire value within each band, the increasing percentage rates will be based on bands, more like income tax. This removes the “cliff edge” effect at certain valuation points, which distorted purchase prices around the thresholds. The new rates are as follows:
Up to £125,000 – Zero
Over £125,000 to £250,000 – 2%
Over £250,000 to £925,000 – 5%
Over £925,000 to £1.5 million – 10%
Over £1.5 million – 12%
Example: If a buyer exchanges contracts for the purchase of a house for £275,000 (the approximate average house price in the UK) on 5 December 2014 then under the new rules the SDLT is calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total SDLT payable = £3,750
For comparison, under the old rules the SDLT would have been £8,250. Therefore, the new rules result in a saving of £4,500.
HMRC have provided a calculator on their website, which can be accessed here: www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
Pensioner Bonds for over 65s
In the Budget 2014, it was announced that new Pensioner Bonds would be introduced from January 2015 and that full details would be announced in the Autumn Statement. However, no details were provided. Further details are now scheduled to be announced on 12th December.