George Osborne, the Chancellor of the Exchequer, got to his feet at 12.30 today and over the course of the next hour delivered his latest Budget Statement
If you have a pension or ISA the changes announced today are possibly the largest for a generation; read on to learn more.
He started by saying that the “economy was recovering faster than forecast” and that “together with the British people we held our nerve” he then went on to announce huge changes to the way in which we save and plan for our retirement.
The economy & Government finances
As usual he started with the general state of the economy and was pleased to announce that the Office of Budgetary Responsibility (OBR) are now forecasting growth of 2.7% in 2015, the biggest upward growth revision between Budget’s for 30 years.
Unemployment has fallen by 63,000 over the past three months, the Chancellor said, there was now “1.3 million people in work”, with a 24% fall in the claimant count. He added that there were now a record number of people in work.
Importantly, the OBR now predics earnings will grow faster than inflation in 2013. Whilst the Bank of England’s target of keeping inflation at 2% was renewed.
The end of the Budget saw the Chancellor announce huge changes to how people get access to their pensions; simply put all pensioners will have more choices and options.
The changes will be implemented in two stages.
From 27th March:
The minimum income required to qualify for Flexible Drawdown will be cut from £20,000 gross per year to just £12,000.
Flexible Drawdown allows pensioners to take more money from their pension fund than they otherwise could by buying an Annuity or using Income Drawdown.
For those people using Income Drawdown, the maximum income they can take will increase from 120% of the GAD rate, a cap imposed by the Government, to 150%.
From April 2015:
Anyone over the age of 55 will be able to take their entire pension pot as a lump sum; 25% will be available tax-free, the balance will be subject to Income Tax at a rate of 20%, 40% or 45%.
Turning to small pension pots, the Chancellor announced changes to the triviality rules.
From March 27th 2014, those people with small pension pots will also benefit from reform of the triviality rules. The overall commutation limit will be increased from £18,000 to £30,000.
The triviality limit on personal pension pots worth £2,000 will also rise to £10,000, with individuals allowed to take up to three separate pots, not two as was preciously the case, as cash.
For anyone taking advantage of the new triviality rules, 25% of the pot will be available as a tax free lump sum, anything else will simply be taxed at an individual’s normal tax-rate.
Of course from April 2015 the triviality rules become obsolete, given the fact everyone will be able to access, if they wish, their entire pension fund as one lump sum.
The age at which you can take your pension will also increase. From 2028 you will not be able to take your pension until you are at least 57; this will then increase in line with changes to the State Pension age so from 2028 the earliest you will be able to take your private or workplace pension will be 10 years before your State Pension.
As with pensions the Chancellor announced huge changes, saying: “Support for savers is at the centre of this Budget.”
It was announced that Cash and Stocks & Shares ISAs will be merged and the overall limit increased from 1st July this year to £15,000; there will be no limit on the amount which can be held in Cash or Stocks & Shares.
In addition people with a Stocks & Shares ISA will be able to transfer to a Cash ISA, something which is not currently possible.
The maximum which can be paid into a Junior ISA each year will be increased to £4,000.
The ISA rules will be amended to allow peer to peer lending to be held.
10% tax rate abolished for savers
The starting rate for savings income tax will be set to 0% and the band to which it applies will be extended from £2,880 in 2014-15 to £5,000 as of 6 April 2015.
In January 2015 the Government will launch a Pensioner Bond, available to anyone over the age of 65, through National Savings & Investments (NS&I). Interest rates will be confirmed closer to the launch but are expected to be around 2.8% for a one year bond and 4% on a three year bond, up to £10,000 maximum into each bond
Premium Bond cap to £40,000 in the summer and then to £50,000 in the 2015/16 tax-year.
Usually the most important part of any Budget the changes announced today were overshadowed by the announcements on pensions and savings.
There was however an increase to the Personal Allowance announced; from April 2016 it will rise to £10,500. In addition the higher rate tax threshold rises from £41,450 to £41,865 next month, and then by a further 1% to £42,285 next year.
The Chancellor is very keen to crackdown on tax-avoidance. He reported that the number of schemes have fallen by half, but more will be done. In future those people who have signed up to avoidance schemes, will have to pay their tax upfront and reclaim the tax paid plus interest.
The Government will also take further measures to stop people avoiding Stamp Duty. From tonight anyone buying a residential property, worth £500,00 or more, in a company structure, will be hit with Stamp Duty at a rate of 15%.
Inheritance Tax waived for the emergency services if they die in the line of duty.
No major changes were announced.
Housing & mortgages
Further changes to planning rules to encourage development were announced.
The Help to Buy, equity loan scheme, the first phase of Help to Buy, will extended to the end of the decade and a new ‘garden city’ is to be built near Ebbsfleet in Kent, whilst parts of London will be regenerated.
Petrol & transport
The fuel duty rise planned for September will not take place.
An additional £200 million to help mend potholes was also announced!
Fags & booze!
Duty on whiskey and spirits frozen
Duty on “ordinary” cider frozen and cut by 1p on beer.
£7 billion package to cut energy prices for manufactures “and families too.”
The SEIS scheme, designed to help investment into small businesses, now made permanent.
The government will extend the grant for small businesses to support 100,000 more apprenticeships.