News: March 2014

Individual

Personal Allowances

The standard personal allowance will rise to £10,500 from 6 April 2015. The age related allowances are gradually falling in line with age-related allowances given to taxpayers born since April 1948.

The transferrable allowance will apply from 6 April 2015 to couples (married or civil partners) where neither person pays tax at the 40% or 45% rates. The spouse who cannot use all their personal allowance against their own income will be able to opt to transfer 10% of their personal allowance to their spouse or civil partner.

The personal allowance is tapered away for individuals who have income over £100,000, at the rate of £1 for every £2 of income above that threshold.

2013/14
£
2014/15
£
2015/16
£
Born after 5 April 1948 9,440 10,000 10,500
born after 5 April 1938 before 4 April 1948 10,500 10,500 10,500
Born before 6 April 1938 10,660 10,660 10,660
Minimum married couples allowance* 3,040 3,140 TBA
Maximum married couples allowance* 7,915 8,165 TBA
Transferable portion of allowance N/A N/A 1,050
Blind person’s allowance 2,160 3,140 TBA
Income limit for allowances for age related allowances 26,100 27,000 TBA
Income limit for standard allowances 100,000 100,000 100,000
Personal allowance removed completely at: 118,880 120,000 121,000

* given as 10% reduction in tax liability, where one partner was born before 6 April 1935.

Income Tax Rates and Bands

Income tax rates are to remain the same to 5 April 2016, with the exception of the savings rate. This will be cut to 0% from 6 April 2015. However, the savings rate only applies if individual’s net non-savings taxable income does not exceed the savings rate limit.

The income tax rates and bands have been announced as:

2013/14 2014/15 2015/16
Savings rate: 10%, 0% from 2015/16 0 – £2,790 0 – £2,880 0 – £5,000
Basic rate: 20% 0 – £32,010 0 – £31,865 0 – £31,785
Higher rate: 40% £32,011 – £150,000 £31,886- £150,000 £31,785 – £150,000
Additional rate: 45% Over 150,000 Over 150,000 Over £150,000

When the personal allowance is taken into account an individual will start to pay tax at 40% when their total income exceeds £41,865 in 2014/15 and £42,285 in 2015/16. This is compared to a 40% threshold of £41,450 in 2013/14. This threshold (and the 45% threshold) can be increased if the taxpayer pays personal pension contributions or makes gift aid donations.

Pensions

The following changes will be introduced from 27 March 2014:

  • A person who wishes to take their pension as “draw-down” instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
  • The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
  • The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
  • The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
  • The number of personal pots that can be taken under these small pot rules will increase from two to three.

In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:

  • individuals will have complete freedom in how they access their pension savings;
  • buying an annuity will not be a requirement on retirement;
  • the 55% tax charge on withdrawing too much from a pension fund will be removed; and
  • everyone will be offered free and impartial advice on how to best use their pension savings.

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