The Chancellor has sprung a few surprises at Budget 2014, including significant incentives to save through the new combined shares and cash ISA and loosening restrictions on pensioners’ access to their funds considerably.
He has also stepped up anti avoidance measures once again.
Martin Holden of Harrogate accountancy firm Saffery Champness commented: Today’s ‘Bingo’ Budget was replete with a healthy dose of political point scoring and a hodgepodge of goodies for just about everyone. It has clearly been aimed at providing financial relief – and no doubt earning political goodwill – amongst Britain’s squeezed middle.”
Further measures have been introduced to discourage tax avoidance schemes, and tax avoidance by multinationals
Mr Holden said: The requirement to pay tax on disputed tax avoidance schemes is a further bayonet into the dying corpse of aggressive and abusive tax avoidance schemes in the government’s anti-avoidance battlefield. The fact that those entering into such schemes will have to pay tax up front on the assumption that the schemes will fail when challenged under the GAAR, will further dissuade all but the most fervent individuals from investing in them. The government war against aggressive tax avoidance continues unabated.
Following the recent G20 meeting, the government have also today announced a commitment to take action against ‘profits shifting’ between company groups where advantage is being taken of double tax agreements to remove profits which would otherwise be taxable in the UK. This is a populist measure, with the likes of Amazon and Starbucks in the Chancellor’s crosshairs. How it will be implemented in practice remains to be seen: success will depend on a genuine internationally co-ordinated approach.
Taken together, these new measures are clearly meant to show that the Government is flexing its muscle when it comes to tackling tax avoidance.
Investment Allowance has been doubled to £500,000
Mr Holden said: One of the Chancellor’s themes for this year’s Budget was that both businesses and individuals should invest more. The doubling of Investment Allowance is a welcome step to help get the economy moving and it could mean a sizeable reduction in tax paid by small and medium sized businesses.
Changes have also been made to the Merged Stocks and Shares ISA
Mr Holden said: To encourage greater levels of savings the Chancellor has increased the amount which can be invested each year in an ISA to £15,000. By allowing greater flexibility in swapping ISA investments into or out of cash he has solved one of the key problems faced by some ISA savers who wanted to reduce the investment risk in their portfolios but were prevented from doing so by the rules.
When taken alongside the new measures on pensions the new stocks and shares ISA, with an increased overall annual allowance, sends a clear political message that the government on the side of responsible savers. This makes a lot of sense after a number of years where savers have been hammered by low interest rates.
The Government has also announced a number of significant changes to the taxation of pensions.
Mr Holden said: The restrictions surrounding how money can be accessed in a pension have caused enormous headaches for many people over the years. Any increase in flexibility here is to be welcomed and particularly the extension of the drawdown rules to those earning less than £20,000.
He added that the abolition of compulsory annuity purchase with private pension savings was a “huge sea change”.
Annuity rates have been falling so far and so fast that pensioners have getting fairly miserable returns on their pension savings.
In relation to tax free pensions lump sum Mr Holden said: Despite the speculation otherwise, it appears that the ability to take a quarter of an individual’s pension pot as ‘lump sum’ tax free payment upon retirement remains intact. This will no doubt be a huge relief to millions of individuals as they approach retirement, particularly those who are counting on this up-front payment to set their personal finances on a new, post-retirement trajectory.
More surprising is the Government’s decision to scrap the punitive 55% tax that currently exists for those trying to take anything beyond the quarter up-front lump sum. The significant drop to normal marginal tax rates is quite an unexpected move, but one that will certainly be warmly received by pensioners and future pensioners across Britain. This is clearly designed to encourage people to feel empowered as they feather their nests for the future.