Proposed pension measures
The Lifetime Allowance reduces from £1.25m to £1m on 6th April 2016, but will increase annually by CPI from 6th April 2018. Transitional protection will protect existing pension rights.
On a positive note, the Annual Allowance is unchanged at £40,000 and higher and additional rate tax relief remains available for individual pension contributions.
In addition to the 6th April 2015 ‘Freedom and Choice in Pensions’ reforms, people already receiving annuity income will, from April 2016, be able to have their annuity income assigned to a third party in exchange for a lump sum or an alternative retirement product.
Increases to Income Tax bands and allowances
Proposed rises to the personal allowance and basic rate limit will result in the higher rate threshold, above which individuals pay income tax at 40%, increasing from £42,385 in 2015/2016 to £42,700 and £43,300 for 2016/2017 and 2017/2018. A large percentage of the population will still be higher rate tax payers who can benefit from tax-relieved pension saving at 40%.
Proposed ISA changes from Autumn 2015
Individuals will be able to withdraw and replace money from their cash ISA in the same tax year without it counting towards their annual ISA subscription limit.
A new Help to Buy ISA will be introduced. For every £200 a first time buyer saves, the Government will provide a £50 bonus up to a maximum of £3,000 on £12,000 of savings, at the point they use their savings to purchase their first home.
A new Personal Savings Allowance from 6 April 2016
Intended to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. Additional rate taxpayers will not receive an allowance.
It’s interaction with the £5,000 0% band for savings income may cause confusion, however low earners will potentially be able to benefit from both and pay no tax on their savings where total taxable income is less than £16,800 in 2016/2017.