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March 2016 Budget Highlights

Written By: Mark Cooper on March 25, 2016 No Comment

Carry the tax burden copyIt was an interesting, at times surprising and certainly wide-ranging Budget, to say the least, delivered by a long-time Chancellor clearly comfortable in his own shoes.

Rather than going through every detail here, these are the salient points for my clients in relation to saving towards or facing retirement and those living in retirement:

Income Tax

The Personal Allowance, the annual income we can receive before income tax commences, raises to the already-known £11,000 from 6th April 2016 and will increase again to £11,500 in tax year 2017-18.

In addition the basic rate income tax band rises to £32,000 from 6th April 2016 and to £33,500 for tax year 2017-18. Assuming a full Personal Allowance, which should be the case in retirement, this means higher-rate 40% tax begins at £43,000 in 2016-17 and £45,000 in 2017-18.

These are welcome increases, the “squeezed middle” at last seeing meaningful rises in the 40% tax threshold that will allow many a well-planned retirement to be enjoyed in relatively low-taxed comfort.

Pensions

A collective sigh of relief greeted no further changes to the Annual (contribution) Allowance of £40,000 for those with ‘adjusted income’ below £150,000 and the imminent Lifetime Allowance of £1 Million. In addition the much muted reduction in tax-relef for contributions was postponed for now at least.

The lack of further Pension changes should not mask the fact that those already in progress are punitive to many, alarmingly misunderstood or underestimated by most who have not taken advice and undoubtedly represent the continued dismantling of Pensions as we know them. See my Lifetime ISA – a Pensions Trojan Horse? article for more on this subject.

ISAs

Big news here with the ISA Annual (contribution) Allowance increasing from the frozen £15,240 in tax year 2016-17 to fully £20,000 from 2017-18, an astonishing leap that allows further Investments and/or Cash to enjoy a tax-free environment for both growth and withdrawals.

Such apparent generosity does need to be seen in the wider context of the shrinking ability to fund Pensions, certainly for higher earners, but nonetheless it is a surprising and welcome boost to such an essential part of long-term financial and retirement planning.

Inheritance Tax

The commitment to raising the IHT threshold to £500,000 by 2021 was reaffirmed by the phasing in from 2017-18 of an eventual £175,000 “Residence nil-rate band” to take account of how rising property prices have dragged more and more people into the clutches of this pernicious wealth tax.

There are upper limits, gradually removing this additional allowance for those with Estates over £2M, however it is to be welcomed and will allow married couples and civil partners a total of £1M to be passed on, on the second death, without an Inhertance Tax burden.

Summary

It was a Budget largely positive for those either nearing retirement or already enjoying retirement, reducing their tax burden and providing fresh opportunities to protect and grow hard-earned savings and investments.

How it helped the country to overcome the uncomfortably high and ever-growing National Debt burden is subject of much ongoing debate, but for now at least savers and retirees can reflect on a favourable outcome, delivered with surely an eye on the fast approaching Brexit vote, and await the next chapter in the 2016 Autumn Statement. Will we still be part of the EU by then? It’s going to be a very close run thing.