It’s business as usual for pension saving as the Chancellor confirmed there will be no imminent changes to pension tax relief. And the introduction of the new LISA saving vehicle from April 2017 adds another attractive complementary option to the saving landscape.
Taken together with cuts in CGT rates, further boosts in income tax thresholds and some welcome tidying-up of pension anomalies, it’s been a good Budget for savers.
Pensions – no news is good news
It’s business as usual for pension saving as the Chancellor confirmed there will be no imminent changes to pension tax relief. And the introduction of the new LISA saving vehicle from April 2017 adds another complementary option to the saving landscape.
In the run-up to tax year end, this allows us to focus on:
- Pension saving: Using the higher 2015/16 annual allowance, and carry forward, to make the most of higher rates of tax relief.
- Lifetime allowance: Planning in earnest for the imminent lifetime allowance cut (including final funding for those using fixed protection 2016 to lock into a £1.25M allowance).
LISA – a new savings option
The Chancellor unveiled plans to introduce a new Lifetime ISA (LISA) from April 2017. But this is a complimentary savings scheme for younger savers, not a replacement for traditional pension saving. Higher rate tax payers will continue to enjoy tax relief at 40% on pension savings of up to £40,000 a year, keeping pensions as their number one long term savings plan. Indeed, the under 40’s will be able to use both and add up to £45,000 pa to their retirement funds.
The Government aims to encourage long term saving with the inclusion of a ‘buy four get one free’ bonus, but with the ability for first time buyers to use savings to get a foothold on the property ladder.
Good news for investors as CGT falls in 2016/17 – but not for landlords…
Investors who own mutual fund or shares can benefit from a CGT cut from 6 April 2016. The new rates are:
- 10% where an individual is not a higher rate tax payer
- 20% where the investor is a higher rate taxpayer, or the gain takes them into the higher rate band.
Trustees and legal personal representatives also win, as their tax rate on trust and estate gains falls to 20%.
However, landlords or second property owners will continue to pay 18% or 28% on any gains when they come to sell.
In April 2017, the Personal Allowance will rise from £11,000 to £11,500 and the higher rate threshold will increase from £43,000 to £45,000.
These two changes will see the take home pay of higher rate taxpayers increase by £500 each year, while for basic rate taxpayers the increase will be £100 each year.
Together with the new dividend and savings allowances available from April 2016, advice will be key to ensuring that clients have their savings in the right place to produce a tax efficient income when they need it.