The Budget at a glance: Pensions and tax

The Chancellor of the Exchequer, George Osborne, has unveiled his latest economic plan for the future of the nation’s finances, with some further changes to pensions. Here’s what he has pledged for this Parliament:

A pensions ISA?

Osborne announced that pensions could become more like ISAs, with contributions made from taxed income, but no tax applied on investment growth or withdrawals. This could be a big hit with young savers, but many questions remain, such as will there still be a lifetime allowance and will employers make contributions? This could also mean that the current rules enabling those over 55 to access 25% of their fund tax-free will be overridden.

Tax relief

The chancellor has announced that from April 2017 families will be able to leave more behind, as £1 million of an estate, including a house, will be free of inheritance tax. This increase will be funded by cuts made to tax relief on pension contributions, with people earning over £150,000 having their annual allowance tapered from £40,000 to £10,000.

Income tax

Income tax rates will remain unchanged but the thresholds at which these apply will change from April 2016. The higher rate of 40% will be increased to earnings of up to £43,000 and further increased to £50,000 by 2020. The personal allowance will increase to £11,000 next year.

National Living Wage and the personal allowance

What may have come as a surprise to many, and certainly caused a stir in the House of Commons, is the decision to introduce a compulsory living wage, starting at £7.20 per hour from April 2016 and increasing to £9.00 per hour by 2020. In addition to this, the personal allowance will also be increased to £11,000 from April 2016 and to £12,500 by 2020.

Business

To allow for the National Living Wage the chancellor has declared an increase to £3,000 in the new Employment Allowance. This will mean that employers do not have to pay any National Insurance for four employees who are on the living wage. Corporation tax will also be cut to 19% in 2017 and 18% by 2020 to instil confidence in business and economic growth.  

Osborne’s announcement confirmed some changes that had already been anticipated, but other factors may have come as a surprise to many. The future of pension tax still remains unclear following the comment that pensions could become more like ISAs. Will the benefit of tax relief on pension contributions be removed altogether?

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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