The Budget today was, as anticipated, a rather closed book in light of the election in just less than two months. There were however a few key points to take from the Chancellor’s Budget that could affect retirement planning, tax planning and financial planning in general for doctors and dentists.
At the moment, just promises…
The General election in May 2015 will of course dictate largly whether the promises of today’s Budget actually go the full mile and make their way into legislation.
That, we will have to wait and see in just a matter of weeks.
Dental & Medical Financial Services have highlighted the key aspects from the 2015 Budget that affect doctors and dentists.
Changes to affect private and NHS pensions
There is to be a further reduction for the lifetime allowance for pensions, which will have a significant effect on pension planning and therefore retirement planning as a whole.
The lifetime allowance is the maximum a pension pot can be built up over a person’s lifetime and not be subject to tax implications on drawdown. A few years back it was £1.5 million, reduced the £1.25 million, which is the current limit, but this Budget has announced from 6 April 2016, the new lifetime limit will be just £1 million.
This reduction will be relevant for both funds held in private pensions and those held in NHS superannuation pensions and it is expected to have negative effects for many dentists and doctors. Subsequently, this raises a bigger question around retirement planning.
Some protection schemes will come into place for pension savers with more than £1 million held in pension funds already so those people won’t in fact lose the contributions already made.
This lifetime allowance, should the government win the election, will be set to remain at £1 million until 2018 after which it will be indexed in line with Consumer Price Index (CPI).
The annual allowance for pension contributions is unchanged at £40,000.
Cash annuity freedom for pensioners
A further pension related announcement was in relation to annuity pensions and plans to make the new pension freedoms available to those already in retirement. Whilst it make sense and the government predict as many as 5 million annuity holders could benefit from cashing in their annuity pension, pension holders also need to consider the lifetime value of both options – financial experts commenting in these initial stages think it is likely the pension holder would remain better off with annuity income.
In any case, there is no concrete plans that such a scheme can be practically built and managed so this will be a case of “watch this space”.
Encouraging investment in personal savings
On the plus side, the government are proposing an allowance to enable personal savers an element of tax free income from savings.
For basic rate tax payers they would be able to receive £1,000 of savings income, tax free, and for higher rate tax payers, £500.
This is to encourage investment into personal savings, an area of financial planning that has taken a big hit in recent years.
A few increased tax allowances
The Budget has provided, as usual, new information around future tax allowances.
The personal allowance for an individual tax payer is currently £10,000, due to increase to £10,600 for from 5 April 2015. For 16/17 the government is proposing another, all be it very small, increase to £10,800 followed by £11,000 in 17/18.
It’s a gesture but won’t be making any significant difference to the overall taxpayers bill.
Regarding Capital Gains Tax, the allowance for 15/16 has been announced as £11,100, again a very small increase from the £11,000 in 14/15.
ISA’s – more flexibility around contributions and withdrawals
From this Autumn it is proposed that Cash ISA contributions can be made and withdrawn in the same tax year without it affecting the annual subscription limit. This adds some flexibility to ISA savers who may be more encouraged to invest excess income into an ISA knowing that there is the option to withdraw it again should a “rainy day” arise.
The list of qualifying investments held within an ISA are also expected to be extended – more to follow from Dental & Medical Financial Services on this.
Intentions for NHS spending – a mystery
The media are already passing criticism to the fact that there was no mention of the NHS in this year’s Budget. So, the government’s intentions with NHS spending are at present, a mystery.
We will therefore have to wait a few more weeks until the pre-election campaigns to gain a better understanding of this.