Once again all eyes are on 11 Downing Street as we anticipate the budget. As usual, speculation about George Osborne’s next move is all over the financial pages. There is no doubt public pressure to increase tax revenue from the wealthy to mitigate the pain felt from the effects of “austerity” is building a head of steam. The signs are that there will be measures to decrease benefits from tax relief on pensions. You can read about some of the likely outcomes here.
The Pensions industry is certainly on the edge of its seat once again; the last couple of years the Chancellor really has been looking to reform the way we save for retirement. Let’s remind ourselves of the changes that will come into effect THIS APRIL as a result of the last budget...
From April 6th, interest on most savings accounts will be paid gross. Instead of having to claim tax back where necessary, basic rate tax payers will only need to declare interest over £1,000. This will also apply to cash within a pension.
This has become more complex; dividend tax credit has gone, and a new annual allowance of £5,000 has taken its place. On any excess over £5,000, tax will be paid on the excess at the following rates:
- 7.5% for basic rate taxpayers;
- 32.5% for higher rate taxpayers; and,
- 38.1% for additional rate taxpayers
Regarding receiving dividend income from investments, this will hit those with considerable assets hard and may encourage consideration for restructuring. For small business owners who use dividends as remuneration, this is going to sting!
The ISA allowance will be £15,240, and this has been set for the following tax year too.
So where does that leave us?
With the favourable changes to savings tax, the question to be asked is, are ISA’s still relevant? Aviva have some useful information and comparisons which show that ISA’s and Pensions are still the most tax efficient ways to save in the PDF document at the bottom of the page. We will have to wait and see whether that remains the case after March 16th!