The Autumn Statement 2014

We've been speaking to Gareth Rees, Partner, Epoch Wealth Management on what the Autumn Statement means for us. Here's what he had to say...

The recent Autumn Statement confirmed some dramatic changes to pensions and introduced some well received amendments to Stamp Duty and ISAs, amongst other things. Examining all aspects would make this a long and dry article, but it’s worth exploring these in a bit of detail so that you are better armed when planning your finances.

Pension changes

Pensions have been reformed many times. The changes announced earlier this year mean that they finally become a savings vehicle that almost everyone should seriously consider incorporating in their financial plan.

Quite aside from the established benefits of tax relief on contributions (£1 invested in a pension costs £0.80 for a Basic rate taxpayer, £0.60 for a higher rate tax payer or £0.55 for an Additional Rate taxpayer), there is almost no tax on growth within a pension. Furthermore, monies invested in a pension are outside of your estate for Inheritance Tax purposes immediately as well.

The new freedoms on withdrawal mean that the biggest downside, that of having to buy an annuity, have been removed and people can use their funds how they wish. Whilst an annuity may still be the most suitable course of action for many, those who do elect to draw money directly need to take care as withdrawals are subject to income tax. The short advice is “Make sure you don’t undo the benefits of tax relief in the first place”.

Another advantage of the new rules relates to improved treatment of pension funds on death. It’s now possible for money to pass down through generations very tax efficiently. Again, care needs to be taken to ensure policies are set up correctly and many older pension contracts won’t be able to accommodate the new flexibility from an administrative perspective, so making sure you can take advantage is critical. With this flexibility comes greater responsibility though, so you may benefit from speaking with your Financial Adviser.

ISA changes

The ISA limit is being increased from £15,000 to £15,240 from next April. But more than this, if your spouse dies, you can inherit their ISAs. Until now, the ISA wrapper was lost on death, so although the underlying investments could be inherited, their tax efficiency could not. Now it is possible for the value of the ISAs on death to be transferred to the surviving spouse. Although this does not help when planning to mitigate Inheritance Tax (IHT), it does allow for greater tax efficiency during your lifetime.

Stamp Duty

A surprise, this one. In short, any house sold for less than £937,000 will pay less in Stamp Duty as of 4th December than it would have before. For those transactions greater then £937,000, there will be more Stamp Duty payable. The values on which tax is payable have changed, as has the method of calculation. Rather than taxing the overall value at one rate, the value fills up “pots” of tax. Once a pot is full, the value starts filling the next tier and so on.