This year’s budget included a revolutionary change to the way in which pension benefits may be taken. This change has already been widely discussed, and the advantages to clients are very obvious. There are also other potential implications which I find even more exciting. Before I discuss this important area I would just like to cover off some of the other points in the budget which I feel will be of particular interest to financial advisers and their clients.


Income Tax

The personal allowance will be £10,000 in 2014-15 as previously announced and will increase to £10,500 in 2015-16.


Not widely publicized, but clearly stated in the budget papers, is a proposal (subject to consultation) to remove the personal allowance from expatriates unless they have strong economic ties here. Clients considering retiring offshore should be made aware of this possibility.


The transferrable personal allowance for married couples and civil partners will be 10% of the personal allowance, which means it will be £1,000 in 2014-15 and £1,050 in 2015-16. As previously announced, it will only be possible to transfer personal allowance where neither partner is a higher rate (or additional rate) tax payer.


From April 2015 the first £5,000 of savings income will be taxed at 0%, provided non-savings income does not exceed the personal allowance. If non-savings income does exceed the personal allowance, the amount of savings income taxed at 0% will be reduced accordingly, which means this measure will only benefit those with non-savings income below £15,500.


Many of our clients, particularly business owners who have control over who is paid how much, may gain significant tax benefits from combining the advantages of both the above paragraphs, by both changing the amount of paid work their spouse or civil partner does in the business (or changing the partnership share) and gifting income producing assets. For clients who have not previously considered this at all there is a potential income tax saving here of up to £6,620.


Capital Gains Tax

The annual exempt amount will be £11,000 in 2014-15 and £11,100 in 2015-16 as previously announced. Also, again previously announced, the final period for private residence relief will reduce from 36 months to 18 months.



From July 2014 we will have the son of ISA – NISA (New ISA).


Up to £15,000 can be invested by each individual into a NISA, and this can be in any mix of cash and shares. This means a couple who have not used their ISA or NISA limits will be able to straddle the tax year in 2015 and invest up to a total of £60,000. This should make NISA investment a far more attractive proposition both for ourselves and our clients.


The investment rules for NISA will also be more flexible than we currently have under the ISA regime.


It will be possible to include a peer-to-peer loan in a NISA, which should give much higher returns (but of course a much higher risk as well) than are available in cash ISAs. The intention is also to extend this to Crowdfunding.


It is also now possible to invest in AIM shares within an ISA, and this will continue with the NISA. AIM shares are, of course, subject to business relief once they have been held for at least two years and therefore there is no inheritance tax to pay on them.


Some clients may wish to begin drawing money from their pension (see below) and investing this into AIM shares in their NISA. The funds invested in this way would still be in a tax favourable environment similar to a pension but with the added benefit of being free to pass on to beneficiaries on death without a tax charge.


Corporation Tax

As already announced, the main rate of corporation tax will be 21% from April 2014. From April 2015 there will simply be the one rate of corporation tax at 20%. At the same time, the rules on associated companies will be greatly simplified.


The Annual Investment Allowance, which allows businesses to claim 100% tax relief on plant and machinery, is doubled from £250,000 to £500,000.


Tax Avoidance

A number of measures were announced, but perhaps the one most likely to concern some of our clients was the extension of the Annual Tax on Enveloped Dwellings. Previously this only applied to residential properties valued at over £2 Million enveloped, usually, in a company in order to avoid Stamp Duty Land Tax on sale. From April 2015 this will apply to properties valued at over £1 Million and from April 2016 properties valued at £500,000 and above will also be included.


Clients using Disclosable Tax Avoidance Schemes, or any scheme which HMRC claims is covered by the General Anti Abuse Regulations, will need to make an upfront payment of the tax the scheme purports to save. They will therefore only gain the tax benefit if and when the courts agree that the scheme actually works and is not abusive.



National Minimum Wage will increase by 3% to £6.50 per hour. This is something for employers to watch, as the budget states clearly it is intended that it should continue to increase by more than inflation.


From 1st April 2015 for most businesses (2014 for a few industries) VAT will be charged on the amount actually paid where a prompt payment discount is offered.


There are no announced surprises with inheritance tax. This means the Rysaffe principle has still not been attacked.


The 50% tax relief on Seed EIS is now permanent.


We also have the tax rate for the new Social Investment Tax Relief scheme announced in the Autumn statement – it is set at the same 30% as for VCT and EIS.



This is the real bombshell in the budget, and one which has already been subject to much commentary. But read to the end, as I doubt you will have seen some of what I am about to say.


The main announcement is that from April 2015 private pension pots will basically be freely available for pensioners to take their benefits however they wish, without any penal tax rates. Once the tax free sum (usually 25%) has been taken, anything else that is drawn will simply be taxed at a client’s marginal tax rate – even if it is the entire remaining fund.


As an interim measure, as from 27th March 2014 the guaranteed pension which will allow flexible drawdown will reduce from £20,000 to £12,000, making flexible drawdown achievable for many more clients. Capped drawdown will be allowed at 150% of GAD rather than 120%.


There will be a requirement for pension providers (or the trustees of a trust based scheme such as a SSAS for example) to provide face to face advice to those about to take pension benefits.


So much for the headline announcements.


Nestling in the small print were a few other interesting points.


It is proposed that the rule stopping those aged 75 or over from making tax effective pension contributions should be scrapped.


On the negative side, from 20th March 2014 HMRC will be given more control on registering and deregistering pension schemes in order to prevent pension liberation.


Those in public sector defined benefit pensions will be unable to transfer except in very limited circumstances and it is likely this will be extended to private sector defined benefit schemes as well. This could mean cases where it would have been best advice for benefits from such a scheme to be transferred to a SSAS or SIPP in order, for example, to buy trading premises for a new company, will no longer be allowed to proceed once the new legislation is in place.


The final point is something I have not seen discussed anywhere.


If a client over 55 is able to do whatever he or she wishes with the money in a private pension, and simply pay normal tax rates, this means the concept of “unauthorized payment” from a pension for someone of this age has disappeared. Take a look through the legislation built around this concept.


One significant area is the way in which the recycling rules are framed. If you fail on all four of the “recycling rules” you will be deemed to have taken an unauthorised payment from your scheme and will be charged the penal tax rate applying to such payments. But if there is no longer such a thing as an unauthorized payment for someone of your age will you in fact be able to recycle tax free cash without any worries? This is a very aggressive stance, and one likely to be challenged by HMRC, but is maybe worth looking at.


Or how about a pension investing in a company in which there is “taxable property”? Again, the way the pension scheme is penalised is by deeming a proportion of the investment to be an unauthorized payment. This could mean a SIPP client may be able to invest up to 100% of the pension fund in shares of his or her company, even if (as is likely) that company has taxable property, and not be subject to an unauthorized payment charge.