Post-Budget Briefing
Pensions Relief
For 2010-11 the Annual
Allowance is £255,000 subject to 100% of earned income. That’s the
maximum you can put into a pension as a personal contribution.
The Budget report has clearly stated that the Government will be considering reducing the Annual Allowance to between £30,000 and £45,000 by April 2011. So anyone looking to make contributions to pensions in excess of £30,000 next tax year should get the contribution paid now and not wait till later. But watch out for the current higher rate tax relief restrictions! Action: If you think you might make a contribution in excess of £30,000 talk to us now to make sure this is made in the most effective way.
Deferring the requirement to buy an annuity
The Chancellor also announced that he will end the existing rules on compulsory annuitisation at age 75.
The
current requirement to consider either an annuity or the more
restrictive Alternatively Secured Pension is to be reviewed and could be
scrapped from April 2011.
In the meantime, some transitional arrangements come into play: As before, a member must take benefits before age 75. However they may now continue under the rules of Unsecured Pension until age 77 when Alternatively Secured Pension rules will be in play.
The review of the whole system is due by April 2011 and could give vastly more beneficial rules for pension drawdown even post 75. Action: Talk to Ovation about all your options. You may be surprised at the opportunities!
Personal Allowance Protection
The personal
allowance increases from April 2011 to £7,475. The basic rate limit for
2011/12 will however reduce accordingly so higher rate tax payers don’t
gain from the personal allowance increase. Those with income over
£100,000 will lose their personal allowance by £1 for every £2 over
£100,000. Action: Can you reduce your income by pension
contributions, moving assets to your spouse or tax efficient investments
to maximise the 0% tax rate?
Capital Gains Tax
Widely expected but planning is possible. The rate for basic rate
tax payers remains at 18%. The rate for higher rate tax payers is now
28%. So if you're crystallising a gain don't forget the use of your
spouse's basic rate threshold or consider pension contributions for
enhancement of your basic rate threshold. You have some flexibility over
when you use your £10,100 allowance and you can still use any losses. Action: Talk to Ovation before crystallising a gain.
Good news for the business owners where the exemption for entrepreneurs relief is extended to £5 million from 22nd June and still only subject to 10%.
National Insurance
An increase of 1% is still
coming in but an increase to the earnings limit of £21pw should limit
the effect. However the rate will be 13.8% which could be avoided
through careful planning and considering salary sacrifice for your
employees for their pension contributions.
ISAs
Remember those tax free investments where you can put £10,200 of your
money to avoid many of the tax above. Well each year the allowance
will be increased with RPI (to the nearest multiple of £120) so get
those taxable gains out of the hands taxman as soon as possible and
don't miss the allowances. Action: Make sure you are using all your ISA allowances.
VAT
The biggest tax change of all. An increase to 20% from 4th January
2011 – so if you're planning a VATable purchase – do it sooner rather
than later. You could save over 2% on the price, that's £200 on a
£10,000 purchase!