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2014 Autumn Statement – Overview [Long article]

A headline-grabbing Autumn Statement

The coalition government’s 2014 Autumn Statement was formulated, unsurprisingly, with more than half an eye on the General Election next May. The high-end property market, wayward banks and tax-shy companies all found themselves in the line of fire and these measures helped to divert attention away from the fact the government had not hit its target to reduce the deficit.

Reforms to stamp duty on residential property garnered the bulk of the headlines. Chancellor of the Exchequer George Osborne introduced a new tiered system, in which rising rates of stamp duty will be charged in incremental steps. As a result, stamp duty will fall for 98% of house buyers and only those buying properties priced over £937,000 will pay more under the new system. 

The annual allowance for individual savings account (ISA) contributions was increased from £15,000 to £15,240 from April 2015 and, in a welcome move for savers, new rules will allow spouses to inherit their partner’s ISA free of tax following their partner’s death. In a more controversial move, the Chancellor clamped down on multinational companies that generate corporate profits in the UK, which are then diverted overseas. These profits will be taxed at 25% and the change is expected to raise £1bn over the next five years. Elsewhere, Osborne introduced a new £90,000 charge for people who have lived in the UK for 17 of the past 20 years but who claim non-domiciled status for tax purposes.

The UK is the fastest-growing of all the ‘G7’ group of wealthiest economies and growth in 2014 has proved stronger than expected. The Office for Budget Responsibility (OBR) increased its forecast for the UK’s economic expansion during 2014 from 2.7% to 3%. Looking ahead, growth is expected to slow to 2.4% in 2015 and 2.2% in 2016, followed by growth of 2.4% in 2017 and 2.3% in both 2018 and 2019. 

Although the UK’s deficit has halved since 2010, the Chancellor was forced to admit borrowing will be higher than previously predicted. A drop in tax receipts has meant the OBR had to raise its forecast for the deficit this year. The deficit is expected to post a smaller-than-expected drop in 2014/15, falling from £97.5bn in 2013/14 to £91.3bn in 2014/15. Looking further ahead, the deficit is forecast to fall to £14.5bn by 2017/18, after which it is forecast to move into surplus.


2014 Budget – Overview [Medium article]

A headline-grabbing Autumn Statement

The coalition government’s 2014 Autumn Statement was formulated, unsurprisingly, with more than half an eye on the General Election next May and reforms to stamp duty on residential property garnered most of the headlines. Chancellor of the Exchequer George Osborne introduced a new tiered system in which rising rates of stamp duty will be charged in incremental steps, reducing stamp duty liability for 98% of house buyers.

In a welcome move for savers, new rules will allow spouses to inherit their partner’s ISA free of tax following their partner’s death. The Chancellor also clamped down on multinational companies that divert UK-based corporate profits overseas – these profits will now be taxed at 25%, raising around £1bn over the next five years. Elsewhere, Osborne introduced a new £90,000 charge for people who have lived in the UK for 17 of the past 20 years but who claim non-domiciled status for tax purposes.

The Office for Budget Responsibility increased its forecast for the UK’s economic expansion during 2014 from 2.7% to 3%, after which it expects growth to slow down. Although the deficit has halved since 2010, the Chancellor was forced to admit borrowing will be higher than previously predicted. The deficit is expected to post a smaller-than-expected drop in 2014/15, falling from £97.5bn in 2013/14 to £91.3bn in 2014/15. Looking further ahead, the deficit is forecast to fall to £14.5bn by 2017/18, after which it is forecast to move into surplus.


New ISA benefit for spouses [Long article]

The 2014 Autumn Statement provided another opportunity for Chancellor of the Exchequer George Osborne to make Individual Savings Accounts (ISAs) more attractive to investors and he duly obliged. Over the past five years, a range of mostly welcome changes have included broadening the scope of allowable investments – to incorporate retail bonds, peer-to-peer lending and Alternative Investment Market shares – and a significant increase in the annual allowance.

Now partners will be able to inherit a deceased spouse's ISA account or accounts. Previously, ISAs lost all their tax benefits on the death of the holder and formed part of their estate for inheritance tax purposes. From now on, for deaths on or after 3 December 2014, the surviving spouse will be deemed to have an additional ISA allowance, equal to the amount the deceased spouse had in their ISAs, which can be used from 6 April 2015. The new rules mean spouses can preserve any tax-free income stream their partner had received.

The new structure is complicated – technically, the ISA wrapper and its tax benefits still disappear on death and the investments are still theoretically part of the estate for inheritance tax purposes. This means that if the ISA is assigned to anyone but the spouse, it will be taxed as before. It is only because there is no tax on inter-spouse transfers that it escapes under the new rules and it is only through the additional one-off allowance to the surviving spouse that – from 6 April 2015 – the Isa retains its tax-sheltering benefits.

The Treasury commented: “150,000 married ISA savers pass away each year and their ISA tax advantages die with them, even if they were saving as a couple. From 3 December 2014, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their ISA tax advantages. From 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance, and so will be better able to secure their financial future and enjoy the tax advantages they previously shared.”

The ISA limit is also set to increase to £15,240 from 6 April 2015.After the significant rise announced last year, this year’s rise is linked to the September inflation figure, as will be the case in future.


New ISA benefit for spouses  [Medium article]

The 2014 Autumn Statement provided another opportunity for Chancellor of the Exchequer George Osborne to make Individual Savings Accounts (ISAs) more attractive to investors and he duly obliged. Over the past five years, a range of mostly welcome changes have included broadening the scope of allowable investments and a significant increase in the annual allowance.

Now partners will be able to inherit a deceased spouse's ISA account or accounts. Previously, ISAs lost all their tax benefits on the death of the holder and formed part of their estate for inheritance tax purposes. From now on, for deaths on or after 3 December 2014, the surviving spouse will be deemed to have an additional ISA allowance, equal to the amount the deceased spouse had in their ISAs, which can be used from 6 April 2015. The new rules mean spouses can preserve any tax-free income stream their partner had received.

The new structure is complicated – technically, the ISA wrapper and its tax benefits still disappear on death and the investments are still theoretically part of the estate for inheritance tax purposes. This means that if the ISA is assigned to anyone but the spouse, it will be taxed as before. The ISA limit is also set to increase to £15,240 from 6 April 2015.After the significant rise announced last year, this year’s rise is linked to the September inflation figure, as will be the case in future.


A new dawn for pensions  [Long article]

The 2014 Autumn Statement confirmed the dawning of a new era in pensions. In aggregate, the system should now prove significantly more flexible, allowing more investment options, greater freedom to pass on assets and more choice on how and when benefits are drawn.

A number of the changes had already been well-flagged – for example, the removal of the cap on drawdown income from April 2015, which will allow all individuals to take as much or as little as desired from their pension pot, though the income will still be subject to tax. However, the Autumn Statement also brought in new rules whereby the new lump-sum withdrawal option – 25% tax-free and 75% subject to income tax – will be added to the existing choices of annuitisation, drawdown and tax-free cash when individuals take their benefits.

The coalition government also introduced new rules that prevent individuals making contributions that attract tax relief and then immediately making lump-sum withdrawals, a proportion of which will be tax-free. People who access a pension under the new flexible rules will only receive tax relief on contributions of up to £10,000 gross each year afterwards. There are limited exceptions to these rules.

Another significant change has been the treatment of residual pension pots on death as the Autumn Statement confirmed the abolition of the 55% tax charge imposed on pension pots in certain circumstances. The residual fund on a personal pension scheme for an individual in drawdown can now be paid to the next generation free from income, inheritance and capital gains tax. Although those who inherit will have to pay tax at their marginal rate when they draw down the funds, this rule change opens up significant opportunities for multi-generational wealth planning. The new rules apply to payments of pension death benefits made from 6 April 2015 onwards.

Another positive note was that spouses who continue to receive annuity income after the death of their wife or husband will enjoy the same tax breaks. Estimates suggest this could benefit two million pensioners. Equally, those who buy annuities from next year can nominate any beneficiary they like to inherit their pension when they die. However, with every silver lining must apparently come a cloud and the government also announced the minimum pension age would increase from 55 to 57 from April 2028 onwards.


A new dawn for pensions  [Medium article]

The 2014 Autumn Statement confirmed the dawning of a new era in pensions. A number of the changes had already been well-flagged – for example, the removal of the cap on drawdown income from April 2015, which will allow all individuals to take as much or as little as desired from their pension pot, though the income will still be subject to tax. However, the Autumn Statement also brought in new rules whereby the new lump-sum withdrawal option – 25% tax-free and 75% subject to income tax – will be added to the existing choices of annuitisation, drawdown and tax-free cash when individuals take their benefits.

New rules were also introduced to prevent individuals making contributions that attract tax relief and then immediately making lump-sum withdrawals, a proportion of which will be tax-free. People who access a pension under the new flexible rules will only receive tax relief on contributions of up to £10,000 gross each year afterwards. There are limited exceptions.

Another significant change has been the treatment of residual pension pots on death as the Autumn Statement confirmed the abolition of the 55% tax charge imposed on pension pots in certain circumstances. A further positive note was that spouses who continue to receive annuity income after the death of their wife or husband will enjoy the same tax breaks. Still, with every silver lining must apparently come a cloud and the government also announced the minimum pension age would increase from 55 to 57 from April 2028 onwards.


Stamp duty reform  [Long article]

The process of buying a house has undergone an overhaul with the wholesale reform of the stamp duty system. Before the changes implemented in the 2014 Autumn Statement, stamp duty was paid at a single rate on the entire price of the property. While 75% of house purchases in England and Wales incurred stamp duty during 2013, this figure rose to 98% in London.

Stamp duty has been modified eight times in the last two decades. Back in 1992, stamp duty was charged at 1% on property sales over £30,000. The threshold was subsequently doubled to £60,000 in 1993, doubled again to £120,000 in 2005, and increased to £125,000 the following year. The rate of stamp duty also gradually increased over time so that, by 2006, properties worth more than £125,000 were taxed at 1% while properties worth more than £250,000 were taxed at 3%. Duty of 4% was charged on properties over £500,000, 5% on properties over £1m, and 7% over £2m. 

However, the coalition government has scrapped this ‘slab’ structure and introduced a new tiered system, similar to income tax, in which higher rates of duty are charged in incremental steps. No stamp duty will be paid on the first £125,000 of a property’s cost; 2% will be payable on the amount between £125,001 and £250,000. 5% will be payable on the amount between £250,001 and £925,000, and 10% will be charged on the amount between £925,001 and £1.5m. Anything above £1.5m will incur stamp duty of 12%.

As a result, 98% of house-buyers will pay a lower rate of stamp duty than before, and only those buying properties valued at more than £937,000 will pay more. Under the old system, for example, a house costing £275,000 would incur stamp duty of £8,250 – however, under the new rules, the buyer will pay stamp duty of only £3,750, saving £4,500. The new system of stamp duty will only apply in Scotland until 1 April 2015, when it will be superseded by Land & Buildings Transactional Tax. 

Looking ahead, Halifax expects house prices to increase by between 3% and 5% in 2015. This slowdown in growth will be exacerbated by expectations of higher interest rates in 2015 and political uncertainty surrounding the General Election. Nevertheless, the bank believes economic expansion should provide support for housing demand, bolstered by stronger growth in real earnings.


Stamp duty reform  [Medium article]

The process of buying a house has undergone an overhaul with the wholesale reform of the stamp duty system. Before the changes implemented in the 2014 Autumn Statement, stamp duty was paid at a single rate on the entire price of the property. However, the coalition government has now scrapped this ‘slab’ structure and introduced a new tiered system, similar to income tax, in which higher rates of duty are charged in incremental steps.

No stamp duty will be paid on the first £125,000 of a property’s cost; 2% will be payable on the amount between £125,001 and £250,000. 5% will be payable on the amount between £250,001 and £925,000, and 10% will be charged on the amount between £925,001 and £1.5m. Anything above £1.5m will incur stamp duty of 12%.

As a result, 98% of house-buyers will pay a lower rate of stamp duty than before, and only those buying properties valued at more than £937,000 will pay more. Under the old system, for example, a house costing £275,000 would incur stamp duty of £8,250 – however, under the new rules, the buyer will pay stamp duty of only £3,750, saving £4,500.

Looking ahead, Halifax expects house prices to increase by between 3% and 5% in 2015. This slowdown in growth will be exacerbated by expectations of higher interest rates in 2015 and political uncertainty surrounding the General Election. Nevertheless, the bank believes economic expansion should provide support for housing demand, bolstered by stronger growth in real earnings.

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