Budget 2014 – what you need to know

Budget 2014 Word Cloud

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Julie Hutchison

19th March 2014 at 4:55pm

Today’s Budget 2014 boost is welcome news for savers.

Whether you‘re saving for retirement, or about to retire, the changes announced today will give you greater control of your money.

So, what’s changing, and when?  Here’s what it means for you.

Fully flexible pensions are coming your way from April 2015

A consultation is now underway to look at how you’ll be able to access your pension savings when you retire.  This includes a much-welcomed review of the hefty 55% tax charge which sometimes applies when pensions are passed on to your loved ones on death – a charge which feels far too high at the moment.

And increased flexibility from Thursday 27 March

Meantime, from next week a handful of changes are taking place which expand some of the choices you have. If you’re about to retire, it’s even more important to get expert guidance before you make any decisions.

The first change will help those with lower pension savings.  If you’re aged 60 or over and your total pension savings are under £30,000, these can now be taken as a lump sum.  You can still take 25% as tax free cash, with the rest taxed in the usual way (typically 20%).

The second change will help those who use income drawdown rather than an annuity to fund their retirement income.The ISA allowance got a massive 26% boost today.  A “New ISA” (NISA) limit of £15,000 will apply from 1 July 2014.  And you can use this for stocks and shares, or cash, or any combination.  The old limit at 50% for cash is being abolished.

The amount of drawdown income you can take each year is increasing, as the limit is going up from 120% to 150% of an equivalent annuity.

The other change affects flexible drawdown with your SIPP. Previously, you had to have guaranteed pension income of £20,000 a year to use flexible drawdown.  From next week, you would only need £12,000 which means more people can control how and when they access their SIPP.

For example, if your State Pension and your employer’s final salary pension combined gives you more than £12,000 income a year, you can then use flexible drawdown if you also have a SIPP. This means you can take whatever money you want, when you want, from your SIPP.  There’s no change to the 25% tax free cash available from your SIPP and you pay income tax on what you take out in the normal way.

That’s a NISA ISA

The ISA allowance got a massive 26% boost today.  A “New ISA” (NISA) limit of £15,000 will apply from 1 July 2014.  And you can use this for stocks and shares, or cash, or any combination.  The old limit at 50% for cash is being abolished.

Between 6 April and 1 July, the temporary limits of £5,940 for cash and £11,880 for Stocks and Shares ISA will apply.  You don’t need to do anything, as all ISAs will convert to become NISAs with the higher limit and flexibility from 1 July 2014.

More cash, less tax

There was good news for everyone who earns up to £100,000.  From 6 April, 20% tax payers will save £112 because the new £10,000 personal allowance comes in.  The saving for higher rate tax payers will be £195.  That’s because of the combined effect of the new personal allowance and threshold for 40% tax.

From 6 April, the new starting point for 40% income tax is £41,865, a 1% increase from 2013/14.

And from 6 April 2015, the personal allowance moves up even further, to £10,500.

That’s it for this Budget 2014 blog.  If you have any more questions about what these changes mean to you, please post below.

The information in this blog or any response to comments should not be regarded as financial advice.

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Laws and tax rules may change in the future. The information here is based on our understanding in March 2014.  Your personal circumstances also have an impact on tax treatment.

A Stocks and Shares ISA and a personal pension are investments. Their value can go up or down and may be worth less than you paid in.

Updated as of 02.03pm 21st March 2014.

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