April CPD Newsbrief – Personal tax
Budget 2014 tax changes – and other surprises
Pensions was the area of greatest reform in this year’s Budget, with an emphatic response to the growing criticism of quasi-compulsory annuitisation. The Finance Bill 2014 will:
• Change the size of small individual pension pots that can be taken as a lump sum. Regardless of the total pension fund, the amount increased to £10,000 as of 27 March 2014.
• Increase the capped drawdown limit to 150% of HMRC/GAD rates for pension drawdown years starting on or after 27 March 2014.
• Reduce the minimum income requirement for flexible withdrawals, from £20,000 to £12,000, subject to pension scheme rules, from 27 March 2014.
• Increase the amount of total pension wealth that may be taken as a trivial commutation lump sum from £18,000 to £30,000 (again from 27 March 2014).
Subject to consultation, from 2015/16:
• Flexible withdrawals will effectively become available to all. The rules for drawing the PCLS will be revised, apparently back to when the lump sum could be drawn in isolation.
• The rate of tax payable on funds remaining at death will be reviewed.
• The minimum pension age (currently 55) will rise in line with the state pension age (SPA), starting in 2028 with a rise to 57 (when the SPA reaches 67).
ISAs From 1 July 2014, all ISAs will become New ISAs (NISAs). The maximum annual contribution will rise to £15,000 and the full £15,000 may be placed on deposit. For JISAs, the investment limit will rise to £4,000 from 1 July, while for the 16-17 year old ISA, the limit will be £15,000 (cash only).
Income tax The personal allowance is already set to rise to £10,000 next month, and an additional £500 is planned for 2015/16. The higher rate threshold will be £42,285, 1% up on 2014/15 and about £1,600 below its 2009/10 peak. This will mean more middle earners moving to 40% tax. The starting rate band , which only applies to savings income, will be cut from 10% to 0%, while the size of the band will rise from £2,880 in 2014/15 to £5,000. 2015/16 was also confirmed as the first year of the new transferable tax allowance for married couples and civil partners. This has now been set at 10% of the personal allowance, i.e. £1,050 initially. It is a measure of the usefulness of the new allowance – which Ed Balls wants to scrap – that it will initially cost only £25 million.
Venture capital The Finance Bill 2014 will formally close down VCT enhanced buybacks, although in practice they disappeared almost as soon as the Treasury’s original consultation paper last July hinted at anti-forestalling measures. The SEIS was granted a permanent existence and its CGT reinvestment relief maintained, though still on half of the gains reinvested.
HMRC launches massive tax avoidance crack down
Nearly 65,000 individuals could forfeit hundreds of millions of pounds to HMRC as part of its plans to crack down on tax avoidance schemes.
HMRC proposes to extend powers currently in draft legislation which allow it to issue payment notices to anyone who has used an avoidance scheme that a court has ruled against.
The measure was announced in last year’s Autumn Statement and will be introduced in the 2014 Finance Bill. But in its consultation paper, HMRC says the draft power “does not go far enough” and wants payment notices to be extended to anyone who has used a tax avoidance scheme into which HMRC currently has an open inquiry.
If the proposals go ahead, it will publish a list of these schemes before the Finance Bill is given Royal Assent and begin issuing notices immediately afterwards. Notices must be paid within 90 days.
The rules will apply to both existing and new cases. HMRC is currently investigating 65,000 individuals and businesses that have used marketed avoidance schemes. It says 85% of these cases took place more than four years ago.
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