The combination of late Autumn Statements and early spring leaks has left recent Budgets largely devoid of surprises. Most pundits believed that the 2014 Budget would follow this trend, if only because the Budget deficit in 2013/14 was still £108 billion. However, George Osborne proved them wrong and revealed a range of initiatives that had successfully been kept under wraps.
The reforms proposed to pensions, reducing the role of annuities, will change retirement planning significantly and have already had an impact on the value of insurance company shares. Some aspects of the new pension framework remain unclear, in particular the treatment of defined benefit (final salary) schemes.
The Chancellor also set out a new structure for ISA savers. Instead of introducing a cap on total ISA investment, as was rumoured last summer, Mr Osborne will increase the annual contribution limit to £15,000 from July 2014. In addition, he will effectively scrap the current distinction between cash ISAs and stocks and shares ISAs.
The changes to the size and rate of the starting-rate income tax band from 2015/16 were also surprises for savers, although only about 1.5 million people are expected to benefit. Ironically, what was widely leaked as the good news of the Budget (and its most costly) - a further increase in the personal allowance to £10,500 in 2015/16 - almost went unnoticed among the Chancellor’s reforms.
- Radical reform of pensions, effectively introducing flexible drawdown for all defined contribution schemes.
- Major relaxations to the rules for turning small pension pots into cash lump sums.
- Reform of ISAs, with a new £15,000 annual contribution limit and full transferability in both directions between stocks and shares and cash.
- The savings tax rate reduced from 10% to 0% and the savings rate band increased to £5,000, both from 2015/16.
- The personal allowance is increased to £10,000 for 2014/15 and to £10,500 for 2015/16, with small reductions in the basic rate band for both years.
- The transferable tax allowance for married couples is set at £1,050 for 2015/16.
- The annual investment allowance (AIA) is doubled to £500,000 and there is a one-year extension of the higher AIA to 31 December 2015.
- Seed enterprise investment scheme (SEIS) is made permanent and new rules are introduced for venture capital trusts (VCTs) and enterprise investment schemes (EISs).
- Higher premium bond investment limits and, from January 2015, a new series of National Savings & Investments fixed rate bonds for people aged 65 and over.