Autumn Statement Financial Planning Summary

Transcription

1 Autumn Statement 2015 Financial Planning Summary Jigar Mehta & Heather Richards 25 November 2015

2 Contents 1 Key Announcements from Autumn Statement Tax rates and bands State pensions Key Announcements from Previous Budgets Budget Announcement April Lifetime Allowance Taxation of income from savings Income tax rates and Bands Budget Announcement July Age related tax bands Dividend taxation Annual Allowance Inheritance Tax Previous budget announcements Devolution of income tax Alignment of income tax and NI Rates and Bands for 2015/16 and 2016/ Income tax rates and bands National rates and bands Other tax nil rate bands State benefits Bereavement benefits by age ISA Limits Pensions

3 This document outlines the changes announced in the Autumn Statement 2015, and any other previous announcements due to come into force as of the 2016/17 tax year. 3

4 1 Key Announcements from Autumn Statement Tax rates and bands No changes were explicitly mentioned in the speech, but the final bands for National have been announced. These are detailed in the table in Section State pensions The new flat rate pension amount was announced, as was a statement that the triple lock is to be maintained. The state pension age will continue to rise with life expectancy. 4

5 2 Key Announcements from Previous Budgets 2.1 Budget Announcement April Lifetime Allowance The Lifetime Allowance is due to drop from 1.25m to 1m in April There will be fixed protection available for those with pots of 1m m, similar to the protection available in The LTA will also start to increase with inflation from April Taxation of income from savings In addition to the current 5,000 nil-rate band for income from savings (which applies to income tax bands after other income) 1 there is a new nil-rate Personal Savings Allowance. From April 2016, basic rate tax payers can earn up to 1,000 of income from savings tax-free. For higher rate taxpayers, it is 500 and for additional rate taxpayers, 0. Banks will no longer deduct 20% tax at source on interest Income tax rates and Bands Changes have been announced to these; please see the table in Section 3 for full details. 2.2 Budget Announcement July Age related tax bands The personal allowance has now exceeded the special personal allowance available to those born before 6 th April 1938, and so is no longer applicable. From now on, all ages will have the same personal allowance (before any changes due to high earnings or tax reliefs) Dividend taxation The 10% dividend tax credit will be abolished and replaced with a dividend allowance of 5,000 pa. The tax payable above this allowance is 7.5% for basic rate tax payers, 32.5% for higher rate taxpayers and 38.1% for additional rate tax payers. Please Note: Unlike other allowances which usually have the effect of removing tax liability from the upper bands of income tax, this allowance is intended to remove tax liability from the lowest bands of income tax. This is illustrated with the following example: 1 Currently tax does not have to be paid on interest income if total taxable income is less than 15,600, i.e. 10,600 personal allowance for any type of income and a further 5,000 allowance for interest income. The 5,000 allowance is however tapered, i.e. an individual with 14,000 of non-interest income (where tax at basic rate would be payable on the 3,400 above the personal allowance) would only have a remaining 1,600 tax free allowance for income from savings. 5

6 I have a non-dividend income of 40,000, and receive dividends of 9,000 outside of an ISA Of the 40,000 non-dividend income, 11,000 is covered by the Personal Allowance, leaving 29,000 to be taxed at basic rate. This leaves 3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this 3,000 first, leaving 2,000 of Allowance to use in the higher rate band. All of this 5,000 dividend income is therefore covered by the Allowance and is not subject to tax. The remaining 4,000 of dividend income is all taxed at higher rate (32.5%). Source: Annual Allowance The Annual Allowance for earnings over 150,000 (including both the employer and employee pension contributions) will be tapered away to 10,000 from April For every 2 of adjusted income 2 over 150,000, the annual allowance will be reduced by 1, down to a minimum of 10,000. This only applies to those whose income, excluding pension contributions of at least 110, Inheritance Tax A new band will be introduced when a residence is passed on death to direct descendants. The extra band will be 100,000 in 2017/18, 125,000 in 2018/19, 150,000 in 2019/20 and 175,000 in 2020/21. It will then increase with CPI from 2021/22 onwards. The band will apply per person and can be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants. This element will be subject of a technical consultation. There will be tapered withdrawal of the additional nil-rate band for estates with a net value of more than 2,000,000, with a withdrawal rate of 1 for every 2 over this threshold. The nil-rate band is frozen at 325,000 until April Previous budget announcements Devolution of income tax Scotland and Wales are to get some powers over their own tax rates. Scotland currently plans to use the same tax rates as those in England for the 2016/17 tax year, but we are monitoring this. Wales is due to get powers from April Alignment of income tax and NI The government are in the process of trying to align income tax and NI. We are keeping an eye on developments. 2 Adjusted income is broadly the individual s net income plus the value of any pension contributions for the tax year. 6

7 3 Rates and Bands for 2015/16 and 2016/ Income tax rates and bands Name Area / Value 2015/16 Value 2016/17 Personal Allowance for people Born on or after 6th April ,600 11,000 Personal Allowance for people born between 6/4/1938 and 5/4/1948 Calculation 10,600 (same as for those born before 5/4/ ,000 Personal Allowance for people on or born before 5/4/1938 Calculation 10,660 11,000 (same as for those born before 5/4/1938) Income Limit for Age- Related Allowances 3 Calculation 27,700 27,700 (married couple s allowance) Married couple s allowance minimum 4 Married couple s allowance aged 75 and over Income Limit for full Personal Allowance Calculation Calculation Calculation 3,220 3,220 8,355 8, , ,000 Personal allowance transferable to spouse / civil partner Not used as yet 1,060 1,100 Lower rate 0% upper boundary (savings income only) 5 5,000 5,000 plus additional tax free allowance Basic rate upper limit 20% 31,785 32,000 3 The age related personal allowance is gradually reduced by 1 for every 2 of income above the income limit for age related allowances until it reaches the current basic Personal Allowance. It then does not reduce until income rises above the income limit for personal allowance of 100,000 where it reduces in line with the basic personal allowance as above. 4 This is also the maximum relief for maintenance payments where at least one of the parties is born before 6 April This is a starting rate for savings only. If an individual's non savings taxable income exceeds the starting rate limit, the 0% starting rate for savings will not be available for savings income. 7

8 Name Area / Value 2015/16 Value 2016/17 Additional Rate Personal Savings Allowance basic rate taxpayers Personal Savings Allowance higher rate taxpayers Personal Savings Allowance additional rate taxpayers Over 150,000 (45%) 150,000 N/A 1,000 N/A 500 N/A 0 Dividend Taxation tax-free allowance / tax credit 10% dividend credit which can be offset against dividend tax 5,000 allowance (see Section 2.2.2) Dividend tax basic rate Dividend tax higher rate Dividend tax additional rate 10% 7.5% 32.5% 32.5% 37.5% 38.1% 8

9 3.2 National rates and bands Name Area / Value 2015/16 Value 2016/17 Qualifying Earnings Factor/ Lower Earnings Limit Primary Threshold (PT) Lower Earnings Threshold Upper Earnings/Profits Limit (UEL/UPL) Employee NI rate (PT UEL/UPL) Employee NI rate (above UEL/UPL) Class IV NI Rate (LPL UPL) Class IV NI Rate (UPL +) 5,824 5,824 8,060 8,060 5,824 5,824 42,385 43,000 12% 12% 2% 2% 9% 9% 2% 2% 9

10 3.3 Other tax nil rate bands Name Area / Value 2015/16 Value 2016/17 Nil Rate Band Estate / Inheritance tax (40%) 6 325, ,000 Married couple s Nil Rate Band Allowance Estate / Inheritance tax 650, ,000 Capital gains tax allowance Reports 11,100 TBA 6 From April 2012 the IHT tax rate reduced to 36% where at least 10% of the estate is left to charity. This change will be considered for a future release. 10

11 3.4 State benefits Name Area / Value 2015/16 Value 2016/17 State bereavement payment Protection / Premature Death analysis / State benefits 2,000 No longer modelled in Dynamic Planner Bereavement allowance / widowed parent s allowance maximum amount Protection / Premature Death analysis / State benefits No longer modelled in Dynamic Planner State benefits (Employment Support - disability) Protection / Disability analysis / State benefits 4, if under 25 4, if over 25 No longer modelled in Dynamic Planner State pension Basic Amount Protection / Disability analysis / State benefits 6, single 9, joint 8, (single tier) 3.5 Bereavement benefits by age Age Area / Value 2015/16 Value 2016/17 Less than Protection / Disability analysis / State 50 benefits No longer modelled in Dynamic Planner SPA

12 3.6 ISA Limits Name Area / Value 2015/16 Value 2016/17 ISA Limit Budget/Investment 15,240 15, Pensions Name Area / Value 2015/16 Value 2016/17 Annuity Interest Rate for fixed-interest Calculations 2.3% TBA annuities 7 Annuity Interest Rate for inflation-linked annuities Calculations -1.2% TBA Annual Allowance Budget / Pensions s 40,000, but including 10,000 for DC pensions after benefit withdrawal 40,000, but including 10,000 for DC pensions after benefit withdrawal and will reduce for high earners Lifetime Allowance rate Budget / Pensions 1,250,000 1,000,000 Notional Earnings Cap 8 Calculations 150, ,200 7 The annuity interest rate is the intermediate rate of return appropriate for a level or fixed rate of increase annuity (COBS 13 Annex 2 3.1R(6)) or the rate for annuities in payment (if less) is the last year HMRC will calculate the notional earnings cap. If schemes need it after that they may calculate it using the method shown in s590c Income and Corporation Taxes Act

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