Also viewable as a video at http://youtu.be/J6LDrh2k4bU
One wag commented that settling
down to watch the budget is now a bit like the FA Cup Final: A once great
national event no longer quite so relevant.
As
ever, my comments below are not political, so I’m not commentating on the team
in blue and yellow who kicked off, or the reds, but on the game itself.
Pleasingly
for me, I called #TieWatch correctly (almost) for the fourth year running. I
went for ‘light blue’ and I sartorially I’d have to concede that George’s tie
was bright blue. But I was close enough.
Like
many people I saw the picture of the new pound coin in the morning before the
budget and realised this was going to cost me money. I’d now have to pay for a new stock library
image on the front of the attached tax tables in 2017. A printed copy is available to clients.
Coin factoid. The new £1 coin is not though,
the first 12 sided coin since the ‘thrupenny bit’ was withdrawn when I was born
in 1971. A silver threepence is still
manufactured in very small numbers by the Royal Mint for inclusion in sets of
Maundy Money.
But
onto the serious stuff (so not the beer and bingo, hardworking folks)
Looking
at the dry numbers first, rather than the savings and pensions comment still to
come, the Chancellor offered little in the way of surprises because his Autumn
Statement was little more than three months ago. Nevertheless, the 2014/15 tax
data cards (see link below) have had to cope with a range of tax changes, including:
·
The
increased personal allowance of £10,000 and the £145 reduction in the basic
rate band.
·
Another
round of increases to company car tax.
·
Various
changes to capital allowances, including the doubling of the annual investment
allowance (AIA) to £500,000.
·
A
further limited one year extension of CGT reinvestment relief for seed
enterprise investment schemes (SEIS).
Tax Tables
I trust that you find the tax rates
useful, and that you find them to be a helpful basis for a discussion with us
about your financial future. As ever,
there is a download on the homepage of my website
Income
Good
to see the basic rate band increasing and for the first time in a while, an
increase (albeit tiny) in the higher rate band. Call me a cynic but I suspect
this was simply to ensure there wasn’t outcry over even more people being
dragged into higher rate, as has happened over the last few years.
A nicer ISA?
Just
the month before the budget we at Green Financial were lamenting the ridiculous
numbers for ISAs, suggesting that rather than increase the allowance each year
by a tiny amount (£11,520 to £11,880 this tax year) they should just make it
£12,000 and leave it for a few years. So we were delighted to hear the news it
will be £15,000 from 01/07/2014 and that much of the faffing about and silly
rules regarding differences between cash and non-cash ISAs will go. The
Treasury said “From 1 July 2014 ISAs will be reformed into a simpler
product, the ‘New ISA’ (NISA) [IG: Geddit!?] , with an overall limit of £15,000
per year.”
It was
also good to see the Junior ISA (JISA) amount will increase to £4,000 (from
£3,720) and we look forward to the removal of silly rules around the old Child
Trust Funds (CTFs) and JISAs too, so the
time when those two are merged and all children have access to the same product
can’t come too soon.
As you
know, I am all in favour of ‘Simplifying Your Finances’
The HM Treasury factsheet on
the NISA https://www.gov.uk/government/publications/the-new-isa-factsheet
Savings
Good
that the 10p rate for savers has gone. For me, that was always just a trick
part of an exam question. A needless piece of tax complexity. Good riddance.
https://www.gov.uk/government/publications/abolishing-the-10-rate-of-tax-on-savings-income-a-fact-sheet
https://www.gov.uk/government/publications/abolishing-the-10-rate-of-tax-on-savings-income-a-fact-sheet
National Savings
Excellent
to see the return of competitive and safe products in the form of pensioner
bonds but disappointing premium bond news.
I used
to be a huge fan of premium bonds,
they were a ‘must have’ component of many financial plans but the gradual
erosion of the interest rate return and the change in prizes (basically more
lower prizes more often, meaning you feel you win more times but the actual
amount you win is less) means these just don’t represent good value and the
fact you could now have more invested is not as good as it sounds. Don’t get me
wrong, there is still a place for premium bonds but it’s the powers that be,
not the holders that are the real winners at the moment.
While the exact details of the bonds for people aged 65 or over will be finalised in the autumn,
the government’s current assumption is that NS&I will offer products which
would pay rates of 2.8% gross/annual equivalent rate (AER) on a one year bond
and 4.0% gross/AER on a three year bond under current market conditions, with
an investment limit of £10,000 per product. These will be taxed in line with
all other savings income.
Pensions
This
was the big one wasn’t it? The day before the budget I was speaking with a
client and said, I can’t see them fiddling around with pensions AGAIN. I was
right in so much that it wasn’t a fiddle but a bombshell. And a good news bombshell
at first sight.HM Treasury themselves no less were quick to tweet “Pensioners will have complete freedom to
draw down as much or as little of their pension pot as they want, anytime they
want”
I just
hope it is true. So many times over the last decade plus, there have been
headline grabbing pension announcements in the budget and then when the small
print is devoured it transpires it wasn’t quite the deal we thought.
The Chancellor’s stated view
was that by removing the effective requirement to buy an annuity, people will
have greater flexibility in accessing their pensions.
This means that people can
choose how they access their defined contribution pension savings; for example
they could take all their pension savings as a lump sum, draw them down over
time, or buy an annuity.
The HM treasury pension helpsheet https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293743/budget_2014_greater_choice_in_pensions_explained.pdf
We’ve
seen much fiddling with pensions recently, the backdoor stealth of lowering the
lifetime allowance to essentially restrict upfront tax relief being one. Yet
the pension announcements all seemed benign. Removing the 55% tax charge so one
just pays one’s marginal rate of tax is fair and just and how it should have
been to start with.
Annuities
still have a place in planning for some people. A guaranteed income for life is
not to be sniffed at. Remember my blog about the last survivor of world war one
who had an annuity that paid him an index linked pension for 58 years? But
annuities are not right for everyone and exceedingly poor value for most at the
moment. At Green Financial we rarely recommend an annuity where an alternative
exists. So it was great that the need to buy one has been completely removed
but to restate what I said at the start of this section, I just hope the
promised flexibility actually comes to pass.
Alongside this, the government
is introducing a new requirement for pension providers to make sure that
everyone retiring with a defined contribution pension pot receives free and
impartial face-to-face guidance on the choices they face when deciding how to use
their retirement savings. Surely good news for me!
In the meantime, as a first
step towards the reform, the Chancellor announced a number of changes to the
current rules that will come into effect from 27 March 2014. This will allow
people to have greater freedom and choice now over accessing their defined
contribution pension savings at retirement. These are:
- reducing the amount of guaranteed income
people need in retirement to access their savings flexibly, from £20,000
to 12,000
- increasing the amount of total pension
savings that can be taken as a lump sum, from £18,000 to £30,000
- increasing the capped drawdown withdrawal
limit from 120% to 150% of an equivalent annuity
- increasing the maximum size of a small
pension pot which can be taken as a lump sum (regardless of total pension
wealth) from £2,000 to £10,000 and increasing the number of personal pots
that can be taken under these rules from two to three
The
linked graphic is how HM Treasury summarise the ‘budget for savers’
Summary and other stuff
I’ll
produce further literature with all the other bits and bobs over the next few
days. I’ll email it out to clients and put it on the website at www.iangreen.com and facebook at www.facebook.com/GreenFinancial
The
Chancellor said this was a budget “for makers, doers and savers”.
I’m off
now to address all of those:
DOING my
job
MAKING
clients finances simpler and
SAVING
them time, money and tax.
