Years ago, the contents of the Chancellor’s red box were top secret: nothing was disclosed or discussed in advance. These days, the tax rates and allowances are announced in the Autumn Statement, policies are put out for consultation, and the Chancellor appears on television to discuss some of his proposals the weekend before the Budget. So it is unusual for a speech to spring genuine surprises – but this one contained significant announcements that no one anticipated.
The most striking proposals concerned the relaxation of the rules for taking pension benefits: there will be consultation on the details, but it seems that from April 2015, people who have saved up a fund in a defined contribution scheme will be allowed to choose how much they take out and when they take it. They will pay income tax on what they draw, after the existing 25% tax-free lump sum, but they will not have to sign up for an annuity. Other less radical relaxations take effect before the end of this month.
Another big change that will affect many people is the relaxation of the rules on tax-free Individual Savings Accounts: from July, the annual investment limit will be increased, and for the first time it will be permitted to invest the whole amount in cash funds.
There were big cheers in the House for a penny off beer and the halving of bingo duty, but more cheers from business for a doubling of the Annual Investment Allowance for purchase of plant and machinery – unfortunately, whenever they change that limit, convoluted calculations are required for periods straddling the change.
As has become the custom, the Budget speech was much shorter than it used to be – less than an hour – but the volume of paper setting out the detail gets longer and longer. There is confirmation of changes that have already been announced, new announcements of changes to take effect now, changes to come in future years, and proposals and consultations which may lead to new policies or to nothing. Shortly after next year’s Budget, there will be a general election: Mr Osborne has a long planning horizon, but is that over-optimistic?
We have gone through the papers and sorted out the important information from the rest – ‘this year and next year’ from ‘sometime and never’. This booklet summarises the most significant changes and outlines their likely impact on the average taxpayer.
- Personal allowances and thresholds announced for 2015/16 – election year
- Tax system starts to gear up for separate Scottish income tax rate
- Flexibility of taking pension benefits increased from March 2014
- Further significant relaxation of pension rules to come in 2015
- Individual Savings Account limits increased, rules simplified
- Seed Enterprise Investment Scheme reliefs made ‘permanent’
- Reduction in CGT main residence exemption confirmed
- Annual Investment Allowance increased to £500,000 from April 2014
- Tax charges on ‘enveloped dwellings’ to be extended to lower values
- Users of tax avoidance schemes to be required to pay tax upfront before arguing about it in court
- Confirmation of measures to close down perceived tax avoidance using partnership structures