Budget 2015 – Some thoughts

Looking back over our previous Budget communications, I see that we have often commented on the number of pages to which the Red Book runs. The Red Book is the comprehensive Budget document containing all the finer details, many of which don’t make it into the Speech, and is as good an indicator as any of the amount of tinkering in which the Chancellor of the day has indulged. This year the Red Book runs to 124 pages and is, perhaps unsurprisingly, George Osborne’s longest, coming as it does only weeks before the General Election. But compare this with Alastair Darling’s final Budget in March 2010, with almost exactly the same number of days to the election – that ran to 227 pages.

But odd statistics aside, what has George Osborne presented us in his final Budget of this session?

Perhaps inevitably the Chancellor was keen to highlight a number of economic indicators:

  • The Office for Budget Responsibility forecasts growth of 2.5%, up from 2.1% predicted a year ago
  • The economy will expand by 2.3% for the next three years, then 2.4% in 2019
  • Inflation is due to fall to 0.2% this year
  • Debt as a percentage of GDP will fall in 2015/16 for the first time since 2001
  • Public borrowing forecasts have been revised down from £91.3bn to £90.2bn
  • Unemployment will fall from 5.7% now to 5.3% by the end of 2015

So, with all the key economic indicators moving in the right direction, the Chancellor had room to indulge in a few pre-election presents for voters. Aside from the usual tax rate adjustments on alcohol and petrol, there were some welcome measures. The £1,000 tax-free allowance on savings income (or £500 for higher rate taxpayers) will mean that a large proportion of the population will no longer pay tax on interest from bank and building society accounts. To be liable for tax on savings income in future, a basic rate tax payer would need to have in excess of £66,000 on deposit earning interest at 1.5%.

Then we have the changes in the personal Income Tax Allowance which will increase to £10,800 in 2016/17 and £11,000 in 2017/18 (it remains at £10,600 for 2015/16). The higher rate threshold will reach £43,300 by 2017/18.

In another round of meddling with pensions, the Lifetime Allowance (the total amount of tax-relieved pension fund that can be accrued in a lifetime) will be reduced from the current £1,250,000 to £1,000,000, but we now know that this will then be indexed by inflation from 2018 and there will likely be further transitional relief measures introduced. But for many, this is a further retrograde step (having increased from £1.5 million to £1.8 million by 2010, the Lifetime Allowance has since dropped three times; first to £1.5 million, then to £1.25 million and now £1 million) and will cause pension savers yet again to have to review their plans – e.g. when should contributions be stopped?

On the subject of pensions, from April 2016 it will be possible to sell existing annuities. Details are a little thin, but it seems that the proposal is that the income an annuity generates can be bought by a third party for a lump sum. You, as the seller would then draw on that lump sum as you wish, i.e. as a regular drawdown, as a lump sum or a combination of both. Either way, it will be taxed at your marginal rate. We expect that the purchaser of the annuity would pay tax on the income it is generating for them – is this a double tax take by this tax-cutting Chancellor?

There had been quite a bit of pre-Budget speculation around Inheritance Tax with some commenting that there may be movement in the tax-free allowance of £325,000 and how this is applied to the principal residence. This rabbit didn’t make it out of the hat – instead we had the announcement of a review into Deeds of Variation under which beneficiaries of a Will can, post-death, alter a Will. This was something that the Leader of Her Majesty’s Most Loyal Opposition took advantage of and which the Chancellor took great delight in reminding the House. But, on a serious point, if we are to lose the Deed of Variation as a means to mitigate Inheritance Tax, it will be even more important that Wills are properly constructed and regularly reviewed.

The 2014 Budget introduced the NISA, or the New ISA, which broadly removed the distinction between Cash and Equity ISAs. Now we have another change to ISAs with the Flexible ISA (though I’m yet to see it referred to as the FISA) and the pending introduction of the Help to Buy ISA (HtBISA?). From this autumn you will be able to withdraw money from an ISA and replace it within the same year without losing the ISA status. A minor tweak really, but nevertheless useful.

The Help to Buy ISA will provide a bonus from the Government for first-time buyers saving for their deposit. Save up to £200 and the Government will provide a bonus of £50 up to a maximum of £3,000, and since this is per person not per property a couple could enhance their savings by £6,000. Note, though, that the bonus is only paid when the property is bought.

This is, of course, but a brief round-up of some of the measures relevant to personal financial planning, and more details are given in the Related Documents section on our website. As always, we will need to analyse further HMRC’s technical notes as these can contain surprises, and we will review the impact on your circumstances at your next review meeting. Naturally, do let us know in the meantime if you have any questions or should there be specific aspects of the changes that concern you.

Philip Chandler APFS CFPCM APP

Chair of Aspinalls Technical Committee