With most New Years, we find that proposed and draft legislation swings into action in the lead up to the end of the fiscal year, 05th April. Rule changes and tax rates need to be published and in place for the start of the new tax year, 06th April 2011. 2011 is no different and HM Treasury are now keen to give all parties three months notice of their intentions to allow some planning to affected, if needed.
One good example of this is the proposed change to the start of the higher rate tax threshold to £35,001, down from £37,400 this financial year (2010/2011). You will have to add to this the new nil rate income tax band, which is proposed to increase from £6,475 pa (2010/2011) to £7,475 pa (2011/2012) under age 65. This has been widely publicised in the media. I have attached a link here for further information: http://www.bbc.co.uk/news/business-12321524
The purpose of this blog is to look at some proposed changes to the overall pensions legislation of the UK. These included the ending of the need to purchase an annuity at age 77 (originally 75). This change along with others is due to happen in the new tax year 2011/2012, starting on 06th April, although it should be noted that the detail here is still draft legislation and may be subject to change. Full details of all of the draft changes and consultation in the Finance Bill 2011 can be found at the HM Treasury website here: http://www.hm-treasury.gov.uk/finance_bill_2011.htm
Income drawdown plans have also received some attention with regards to rule changes and I am now writing with regards to your plan both to update you on its value, as I did in the spring of last year, but also to identify the proposed changes as we know them. Some of this legislation is yet to be finalised and may be subject to change.
In no specific order, the proposed changes are as follows:
1. The maximum age to which annuity benefits had to be purchased increased from age 75 to age 77 this tax year. From April 2011, annuity will not have to be purchased at any age. There is also an increase in income flexibility (subject to an annual allowance charge if used) for those with a lifetime pension income of at least £20,000 per annum.
2. Currently, on death before age 77, fund benefits are available to your beneficiaries as a cash payment, subject to a tax charge of 35%. From April 2011, this death charge after this date will be 55%.
3. Currently, the maximum income available under an income drawdown is 120% of the annuity income that could be purchased under the plan on a single life basis. From April 2011, this is being reduced to 100% at your next 5 year review date. Thereafter, it will be reviewed every 3 years until age 75, whereby this changes to an annual review.
These are draft changes and propsals and may affect you planning. If you would like to review your plan or your future planning then please contact our office accordingly.
As always, it should be noted that we are all different and this information should not be used or relied on as individual financial advice. Please note that the website links above are to websites for which Churchouse Financial Planning has not approved the content.
Keith Churchouse
Chartered Financial Planner & ISO22222 Certified Financial Planner
Director of Churchouse Financial Planning Limited
Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority
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