The first Budget under the new Conservative – Liberal Democrat coalition government on Tuesday 22nd June saw George Osborne outline the first steps in tackling the crippling level of debt currently held by the UK. Our executive summary is contained in full on our website, however, we have highlighted below some of the key planning opportunities.
The annual Capital Gains Tax (CGT) exemption remains at £10,100 for the current tax year and is set to increase in line with inflation in the future. CGT will now be linked to income with an increase in the rate from 18% to 28% for trustees and those with capital gains in excess of their annual exemption which, when added to their income, exceed the income tax higher rate threshold (£37,400 2010/11). Where the income and capital gains do not exceed the threshold, the existing rate of 18% will continue to apply and gains straddling the threshold will pay 18% on the amount of gain below the threshold and 28% above it. These provisions are considerably less severe than many had feared and continue to provide us with the means to effectively mitigate CGT liability in most cases through the active management of client portfolios.
One of the biggest and perhaps most unwelcome surprises is the increase in VAT from 17.5% to 20% from January 2011. This will of course affect everyone’s day to day cost of living, however, special consideration should also be made by anyone considering purchasing a VAT registered commercial property through their pension as the initial funding will need to cover the additional VAT cost, although this is then reclaimable by the pension.
The age limit at which one must purchase an annuity or otherwise secure an income from a pension scheme has immediately increased from 75 to 77 with a view to removing the age limit altogether by 2011/12. Further detail will become clear once the Finance Bill is published, however, it is believed that Unsecured Pension will be extended to apply from age 75 to 77 and the rate of tax on death between age 75 and 77 will reduce from an effective rate of 82% to 35%. There is, however, still a requirement to take tax free cash before age 75. The changes currently only apply to those who had not yet reached their 75th birthday on the 22nd June 2010.
The Anti-Forestalling measures which apply to those earning over £130,000 remain in place for the time being, however, the government intends to make changes to the pension funding regulations in due course, possibly to repeal the Anti-Forestalling measures and recoup lost revenue through the reduction in the Annual Allowance from £255,000 to perhaps as little as £30,000 or £45,000. In the meantime it is essential for those of you funding pensions to review your provisions to maximise opportunity whilst it remains. In particular there is a window of opportunity for those earning between £30,000 and £130,000. Our pensions specialists would be happy to discuss your pension planning in this rapidly changing market.
ISAs are set to increase in line with inflation from April 2011 and remain an important planning tool to shelter wealth from tax. Over a period of 10 years a couple could effectively shelter over £200,000 through using their annual ISA allowances. Should you wish to discuss the use of your ISA allowance this year please contact us.