Retired Members Info and Resources Issue 59 April 2015

Income tax

What’s happened

• The basic income tax personal allowance will be £10,600 in 2015-16 and will then rise to £10,800 in 2016-17 and £11,000 in 2017-18.
• The higher rate threshold will also rise in line with the personal allowance, from £42,385 in 2015-16 to £42,700 in 2016-17 and £43,300 in 2017-18.
• The higher age allowances which used to apply to people who reached age 65 before April 2013 have been frozen, so the allowance for those born between 6 April 1938 and 5 April 1948 is now the same as above while the allowance for those born before 6 April 1938 is just slightly higher for 2015-16 at £10,660.
• The new Marriage Allowance being introduced in 2015-16 will also rise in line with the personal allowance in future years. This enables married couples and civil partners to transfer some of their personal allowance to reduce the amount of tax paid as a couple.
• Couples where neither partner is a higher or additional rate taxpayer will be able to transfer £1,060 unused personal allowance. However, those eligible to claim the existing Married Couple’s Allowance (available if one or both were born before 6 April 1935) will not be able to use this new Marriage Allowance.

Age UK’s response

The upcoming rise in the income tax allowance to £10,600 reduces the numbers of people under the age of 65 who pay income tax and the proposed increases from 2016-17 would also benefit those aged 65 and over who previously received the higher age related allowances which have been frozen since 2012-13.
The transferable Marriage Allowance will be particularly beneficial to married pensioner couples or civil partners where one partner has not been able to make the most of their own personal allowance.

Private pensions

What’s happened

In last year’s Budget, the Chancellor announced that from April 2015 people with defined contribution pension schemes will have much greater flexibility in how they will be able to access their pension savings and will not have to buy an annuity if they don’t want to.
This year, the Chancellor made some further announcements:

• Selling a pension annuity: from April 2016, if you already have a pension annuity you will be able to sell your annuity income to a third party (but not your annuity provider). However, the Government will be consulting on this proposal. The Budget documents say that for most people keeping your annuity will be the right decision and your existing annuity provider’s approval will be needed before you can sell the income to a third party.
• Pensions tax relief: from 6 April 2016, the Government will reduce the lifetime allowance for pension contributions that benefit from tax relief from £1.25 million to £1 million. The lifetime allowance will be indexed to increase annually by CPI from 6 April 2018.
• Pensions guidance: Additional funding of £19.5 million in 2015-16 will be provided to support the new pension freedoms and the new pensions guidance service, Pension Wise. This funding will extend the availability of state pension statement and pension tracing services. It will also provide for extra delivery capacity for Pension Wise.

Age UK’s response

If you have an annuity and wish you’d been able to take advantage of the Government’s new flexibilities then the option to sell the income may be very welcome, but older people will need to watch out they get a fair price if they do decide to sell.
Other issues arise too: for example, will this move open up more people to the risk of scams or action from creditors from which they are currently protected?
Age UK would like the next Government to set up an independent retirement savings commission to look at pension savings and income in the round, so older people can be assured that they are getting the best possible deal, however they choose to use their money.
The cut to the lifetime allowance for pensions tax relief is estimated to affect less than 1 in 20 pension savers, according to the Government, but is most likely to affect long-term members of a final salary pension scheme or people who have made significant contributions to a defined contribution pension scheme. These people should ask their pension provider whether they are likely to be affected.

State pensions and benefits

What’s happened

• As announced in Autumn 2014 the basic State Pension will be increased by £2.85 a week in April 2015 – an increase of 2.5% in line with the Government’s commitment for this Parliament that the basic pension will be increased by the highest of earnings, CPI or 2.5 per cent (the so-called ‘triple lock’).
• The standard minimum income guarantee in Pension Credit will also be increased by £2.85 rising to £151.20. This will be higher than is required by legislation and will partly be paid for through a reduction in savings credit.
• As a consequence of the increase in the Pension Credit guarantee, the full new State Pension starting in April 2016 will be at least £151.25 per week.
• The Budget documents confirm that the Government welfare spending cap starting in April 2015 will be £119.7 billion in 2015-16 increasing to £129.8 billion by 2019-20. The cap will not include state pensions or jobseeker’s allowance but will cover other social security benefits including pension credit, attendance allowance and winter fuel payments.
• If in the future the cap is likely to be breached the Government will need to reduce spending or ask Parliament to approve the higher expenditure. However in the Autumn Statement the Chancellor stated that latest forecasts suggest they were on track not to exceed the cap.

Age UK’s response

Age UK does not support the principle of setting a welfare spending cap which we believe could lead to short-term cuts and have a detrimental impact on people’s lives. Instead, we would like to see a more strategic approach to social security spending including, where appropriate, initiatives which address the causes of rising social security costs in the medium-term such as improved employment support.
While it is a relief that the state pension is exempt from the welfare cap, other pensioner benefits do come within the cap and if it is breached in future years it is not yet clear what steps a Government will take.

ISAs and Personal Savings Allowance
What’s happened?

Individual Savings Accounts (ISAs)
The amount you can pay into an ISA each year will increase to £15,240 in 2015-16. Also as previously announced, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their ISA tax advantages. From 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance.
Savers will also be able to take money out of their ISA and put it back in again at a later date within that tax year without the ISA losing its tax free status, something that has been termed the ‘flexible ISA’. This change will be introduced in the autumn following consultation with ISA providers.
There will also be a new ‘Help to buy ISA’ available for first time buyers. For every £200 saved into the ISA by the individual, the government will top it up by a £50 bonus at the point the savings are used to purchase a property. This bonus will be limited to £3,000 and will be available for homes up to the value of £450,000 in London or £250,000 outside London. The aim is to get these to market in the autumn.

Personal Savings Allowance
This will be introduced in April 2016 and will exempt the first £1,000 of savings income from any tax for basic rate taxpayers or the first £500 for higher rate taxpayers. It will not be applicable to additional rate taxpayers.
The position in 2015-16 is that some people will no longer have to pay any tax on up to £5,000 of their savings interest depending on their total income. If total income including savings income is below the personal allowance plus £5,000 (ie £15,600 in 2015-16) there will be no tax to pay on the savings income. If income is higher than this but income from non-savings sources such as pensions and earnings is below £15,600, part of the savings income will not be taxed.
The new personal savings allowance will mean around 95% of savers will not have to worry about the tax implications on their savings.

Age UK’s response

Other announcements – What’s happened?

• Inheritance tax: The Chancellor made no changes to Inheritance Tax, but he announced a review of ‘Deeds of Variation’ for tax purposes. Deeds of variation allow beneficiaries to vary the contents of a will up to two years after a death, and are often used for tax planning.
• Energy: There will be no increase in the Fuel Duty. The Budget also confirms that the government will provide £1.3 million to fund the Big Energy Saving Network (BESN) in 2015-16.
• Digital tax accounts: The Chancellor announced that ‘the government will transform the tax system over the next Parliament’ by introducing new digital tax accounts. People will be able to view and manage their account on line and will no longer have to send in an annual tax return. The government says that the transition will be simple for most people but HMRC will continued to provide extra help and support for those that have difficulty going on line or need extra help. By early 2016 it is expected that the first ten million individuals will have a digital account. There will be consultation on the changes.
• Gift Aid Small Donations Scheme (GASDS): The maximum annual donation amount which can be claimed through the GASDS will be raised from the current figure of £5,000 to £8,000. This will allow charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year from April 2016 without any additional paperwork.

Age UK’s response

Many people who are confident about managing their tax affairs online will welcome these reforms. But 29% of people aged 65-74 and 63 per cent of those aged 75 or older have never used the internet and it will be vital that those who cannot or do not want to use a digital system can continue to manage their tax affairs in a way that suits them.
**NB** It might be handy to retain pages for future reference if needed.

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