Chancellor George Osborne delivered his sixth and final Budget of this Parliament on 18 March. We summarise the key changes here.
We also explain the unexpected announcement about a review of Deeds of Variation that could lead to changes to Inheritance Tax planning opportunities for families on death.
For those born after 5 April 1938 the personal allowance will be increased to £10,600, increasing to £10,800 in 2016/17 and to £11,000 in 2017/18.
The basic rate of tax is currently 20%. The threshold at which the higher rate band of 40% applies will rise from £41,865 to £42,385 increasing to £42,700 in 2016/17 and £43,300 in 2017/18. The additional rate of tax of 45% is payable on taxable income above £150,000.
A further change is the departure from annual paper tax returns which will be replaced with a digital tax account. This will enable individuals and small businesses to see and manage their tax return online.
The total amount of pension contributions that an individual can accumulate over their lifetime (known as the ‘lifetime allowance’) will be reduced (from 6 April 2016) from £1.25 million to £1 million. The lifetime allowance will be indexed annually in line with the Consumer Price Index from 6 April 2018.
For those who have already purchased an annuity, from April 2016 the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum. Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually. Income tax at the individuals’ marginal rate will be payable in the year of access to the proceeds.
An unexpected announcement was the proposed review of Deeds of Variation. A Deed of Variation is a legal arrangement entered into after a person has died that allows estate beneficiaries to alter the terms of a deceased person’s Will (or alter the application of entitlement upon an Intestacy) by redirecting estate assets to different beneficiaries. In certain circumstances this can create significant Inheritance Tax savings whilst also affording families flexibility with the distribution of an estate.
This Inheritance Tax loophole was recognised as long ago as the late 1980s by the then Chancellor Nigel Lawson, but ultimately no legislation was passed to change the rules. It remains to be seen what post election changes are proposed with a further expected announcement expected in the Autumn.
Pinney Talfourd Solicitors has a large team of experienced private client lawyers who can reduce or even eliminate your liability for inheritance tax. We can also advise on the best way to retain your wealth with the use of trusts and careful tax planning.
Please contact us on 01708 229 444 for more information or visit the Wills, Trusts & Tax page to find out more.