The 2010 Emergency Budget -
A Financial Planning Perspective
On the 22nd June 2010, Chancellor George Osborne delivered his first Budget.
Here we take a look at the Budget as it relates to Financial Planning matters.
Pensions Tax Relief
Legislation will be forthcoming to repeal the Finance Act 2010 measures that introduced the high income excess relief charge, which was due to operate from 2011/12. The Government will instead use the existing allowances structure to restrict higher and additional relief for pension contributions. The Budget Red Book says that ‘provisional analysis suggests an annual allowance in the range of £30,000 to £45,000 would raise the necessary yield’.
Anti-forestalling rules brought in by the previous government, which were designed to stop high earners from accelerating payments before new rules come in next year, are to remain in place until April 2011.
Ending Compulsory Annuity Purchase at Age 75
The Government has announced an end to the rules that require annuity purchase (or more correctly the provision of a secured or alternatively secured pension) at age 75. This is to allow people to ‘make more flexible use of their pension saving’.
New rules will come into full effect from April 2011 whilst the Government consults on the necessary changes. As an interim transitional measure legislation will be introduced in the Finance Bill to extend the age threshold from 75 to 77 for members of money purchase schemes. This is aimed only at those reaching age 75 on or after 22 June 2010, and will allow them to put off making a decision until the new rules are in place.
The transitional rules allow continuation of unsecured pension (USP) beyond age 75 and up to age 77 although benefits must still be fully ‘crystallised’ before age 75. This means that the pension tax free cash lump sum (the commencement lump sum) must still be taken before age 75.
The tax treatment of death benefits for those in the age bracket 75-77 will be as per current USP rules. This covers both inheritance tax rules and the standard 35% tax charge deduction on death.
Pension Age
The Government is proposing to bring forward plans to raise the State Pension Age for men to 66 from possibly as early as 2016.
The Chancellor also announced that it was intended to scrap the default retirement age of 65 at which employers can legitimately dismiss an employee on ‘retirement’ grounds.
Capital Gains Tax (CGT)
The rate of CGT remains at 18% where an individual’s taxable gains and taxable income are less than the income tax basic rate limit, currently £37,400. A new CGT rate of 28% will apply to gains or parts of gains that exceed that limit. Trustees and the personal representatives of deceased persons are subject to the 28% rate on all taxable gains.
Gains on disposals before 23 June 2010 continue to be liable to CGT at 18% and will not be taken into account in calculating the rate or rates that apply to gains realised from that date.
The annual exemption allowance will remain at £10,100 and will continue to be indexed in future years.
Individual Savings Accounts (ISAs)
For tax years starting from 6 April 2011, the annual ISA investment limits will increase each year in line with inflation as previously announced. The new limit will be based on the annual retail prices index (RPI) increase to the previous September and rounded to a multiple of £120.
The subscription limits for the current tax year are as follows:-
ISA overall maximum |
£10,200 |
ISA maximum in cash |
£5,100 |
ISA maximum in stock and shares |
£10,200 (less any cash element) |
Inheritance Tax (IHT)
There are no changes to the nil rate band which presumably will remain frozen at £325,000 until 2014/2015 as previously announced.
Cumulative chargeable transfers (gross) |
% tax rate on death |
|
2010/2011 |
2011/2012 |
|
£0 – £325,000 |
£0 – £325,000 |
0% |
£325,000 + |
£325,000 + |
40% |
Disclaimer
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. This document has been produced for general guidance only and does not constitute tax advice. Whilst every care has been taken in its preparation, Warr & Co will not accept liability for any loss incurred as a result of any use made from this document or its contents. We will be happy to offer specific advice to clients when requested. Should you have any queries or wish to discuss any of the points raised, please contact Jeff Crewdson on 0161 477 6789.
Date of Article: 24th June 2010
