With the world economy still in the doldrums and Europe in its own double-dip recession, the UK had a budget deficit of more than £100bn as the Chancellor stood up to speak. The bulk of his speech was therefore expected to concentrate on measures to fill this hole, with action on pensions, tax avoidance, welfare cuts and fuel duty all well trailed.
His first words – to Opposition jeers – were “The British economy is healing.” Once the Speaker had restored calm, he went on to announce the key measures he feels will truly achieve that goal. You will already be well aware of the headline measures, such as the cancellation of the planned 3p per litre rise in fuel duty, so we’ve summarised below the changes that may impact your financial planning.
Key announcements that may impact your long term planning
The lifetime pension relief allowance will fall from £1.5m to £1.25m from April 2014. For those of you in this bracket we will plan how to maximise your allowance prior to the changeover date.
Going hand in hand with the reduction in lifetime allowances is the reduction in annual tax free limit for pensions from £50,000 to £40,000 from April 2014.
Those people who won’t now be able to contribute significant amounts to their pensions would have hoped for a healthy rise in the ISA allowance – but it was never going to happen. An increase of just 2.1% to £11,520 was announced from April 2013.
Those already retired with pension drawdown arrangements will be able to take a higher income from 2014, with the limit rising from 100% of an equivalent annuity purchase to 120%. This seems like a sensible move which has pleased the pensions industry and could make a significant impact upon your retirement income planning, so give me a call if you would like to discuss the impacts for you.
The threshold for Inheritance Tax is due to rise by just 1% from £325,000 to £329,000, but not until April 2015. This is seen by the Government as an easy tax to collect, so with houses prices at best static he cannot rely on house price inflation to boost his coffers.
And finally the capital gains tax annual exemption will increase by 1% in 2014 and 2015, eventually reaching £11,100. This is again a very small rise in a tax relief which the majority of people don’t use as much as they could.
Could have been worse?
The news from the Chancellor was mixed, but given the state of the world economy, the figures and the outlook could have been much worse. The simple truth is that whatever George Osborne says or does, events in the wider world will have at least as much impact as he does on the UK economy – if not more. The changes announced mean there’s a real need for financial planning to make the most of the available allowances for each and every one of us.