Whilst
all eyes were anticipated to be on the Budget, George Osborne’s thunder was
stolen, somewhat, by the activities of
the Federal Reserve and attention turned to Washington as the Fed’s pledge to
be 'patient' before raising interest rates, was dropped.
The
March 2015 Budget might be seen as a political statement with Conservative strategists
wanting Mr Osborne to set the tone for the general election campaign. So whilst it is the Chancellor’s sixth Budget, the objective might be said to be closely aligned with a political
message and the focus appears to remain the state of Britain’s public finances
and getting the deficit down. So perhaps
this Budget should be viewed as one whose objective is political impact given
the polls place the Conservatives and Labour neck and neck.
The
headline issues which may have impact for family lawyers and financial remedy
cases include:
(a) The pension pot lifetime allowance is cut from
£1.25m to £1m from 6th April 2016 – a move predicted to generate
£600 m for the Treasury. Significant
why? The allowance was introduced in
2006. In 2011 it stood at £1.8m and the Budget announcement represents further disincentivisation on saving for
retirement. Pension holders pay a 55% tax charge on any amount held over the
lifetime limit. There is transitional
protection created for those adversely affected. Form April 2018 the lifetime allowance will
be indexed, rising in line with the annual increase in the CPI.
(b) In addition, people who have bought an
annuity will be allowed to sell the income to a third party and the proceeds
could be taken directly or drawn down over time although taxed at the holder’s
marginal rate. Relevant to financial remedy proceedings
includes the following considerations:
– Pension sharing might be a remedy to
overfunding and a means to alleviate the 55% tax charge.
– Think about the client with commercial
property currently worth £700,000 and equities and cash of some £200,000 but
who is only 48 years of age – is he likely to exceed the allowance by
retirement? What predictions can and
should be made for growth on the commercial property and equities? Is it in his long term interests to
share?
– Are the new reforms (see my March
Family Law article,
'The most radical changes to pensions in almost a century') going to
create greater flexibility in defeating past liquidity issues in allowing
access to pension funds to provide capital for, say housing needs?
c) The personal tax allowance currently
stands at £10,000 and rises to £10,600 this April but the Budget announced a
further rise from April 2016 to £10,800 and then to £11,000 in April 2017. Frequently when looking at net effect
considerations on the division of income at the time of divorce and
incentivising divorcees to go back to work, the tax efficiency of a personal
allowance is not lost in looking at utilising the earning capacity over time
with, perhaps, a corresponding step down in quantum of periodical payments post
the making of any order or agreement.
d) There are new and improved
anti-avoidance measures with legislation to implement the previously announced
changes to the DOTAS (Disclosure of Tax Avoidance Schemes) regime that will be
included in the Finance Bill of 2015 due to be published next week. Amongst the proposed changes are:
– Removing the duty of confidentiality from
persons who voluntarily disclose information to HMRC to assist HMRC in
determining whether there has been a breach of the DOTAS rules.
– Increasing penalties.
– Empowering HMRC to publish summary
information about notified schemes and identify users of undisclosed
schemes.
