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George Osborne’s latest budget is targeted at helping pensioners and savers.

Despite an improving economy the Chancellor had little room for pre-election give-aways due to the state of the economy. Mr Osborne said that the government would continue their austerity plan and announced a cap on the welfare budget and that the tight controls on public spending would continue. However he was able to make some headline grabbing announcements.

The most prominent change is the previously announced increase in the annual personal allowance to £10,000 from 6 April 2014. This saves a basic rate taxpayer £112 in 2014-15. The personal allowance will increase to £10,500 for 2015-16.

Approximately 400,000 extra taxpayers will be dragged into paying the 40% tax rate in 2014/15 due to the threshold not being increased. This has been an area of criticism so Mr Osborne announced that the higher rate threshold would be increased in line with the increase in the basic rate threshold, however this does not come into effect until April 2015.

The increase in the personal allowance brings it into line with the pensioner’s higher personal allowance, which was frozen in 2012. Mr Osborne believes that pensioners should be better off due to the introduction of a pensioners bond and his changes in the taxation of savings income and pension draw down rules. However it would appear that these will be more of an advantage to wealthy pensioners.

Interest rates have been at an all time low for several years which has made it very hard for anyone depending upon investment income. From next January over 65’s will be able to invest in a special bond paying 2.8% for a one year bond and 4% for a three year bond. The limit for both cash and stocks-and-shares ISA’s will be increased to £15,000 so that more income will be tax free.

The 10 % tax rate on savings income for anyone with income of under £13,000 is being abolished and replaced with a £5,000 nil rate band for savings income so that the vast majority of taxpayers on moderate incomes will pay no tax at all on their savings income.

Mr Osborne also made a surprise announcement that the requirement to buy a pension annuity will be abolished. Pensioners are currently able to take a 25% lump sum tax free. Any lump sums withdrawn over this 25% limit would be taxed at a punitive 55% tax rate. Under the new rules pensioners will be able to withdraw money from their pension schemes and be taxed at their marginal tax rate. Larger amounts will therefore be liable to the 40% higher rate. The treasury anticipate that this will result in higher amounts being withdrawn from pension schemes which will increase the tax yield in the next few years.

This change is good for people wanting greater flexibility in managing their pension funds but there is a risk that people will be over optimistic and withdraw too much from their pension schemes leaving them with insufficient funds in later life.

Working parents will be given help with the cost of child care. Parents paying £8,000 childcare costs to a registered provider will get a £2,000 subsidy per child from the government from next year.

This is not a budget for anyone who is unemployed or on state benefits, but if you are employed or have sizeable savings then you should be better off.

Howell & Co has been assisting Online Profiling Ltd since 2005. They couple efficient service with good practical advice and are always extremely helpful and professional.  
Trevor DawesManaging DirectorOnline Profiling Ltd

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