Post‐election, pre‐budget commentary

Briefing Notes

Following the election of a majority Conservative Government in May 2015, which surprised many commentators (and perhaps even some politicians), the Chancellor has announced an “emergency” Budget for 8 July 2015. While, of course, there are likely to be a few surprises, the expectation is that there will be relatively little to concern investors, particularly given the election commitment not to increase the rates of income tax, national insurance or VAT, and not least because significant changes were already announced towards the end of the last Parliament. This note consolidates some of the most important changes that have been introduced affecting personal finances in recent months, and looks forward to potential changes that may be implemented, based on comments from the last coalition Budget on 18 March 2015, and the 2015 Conservative Party manifesto.


The lifetime allowance (LTA) will reduce from £1,250,000 to £1,000,000 on 6 April 2016. From April 2018, the LTA will be changed in line with the Consumer Price Index.

The annual allowance will remain at £40,000 for the 2015/16 fiscal year, except for individuals drawing flexible pensions, whose allowance will mostly be restricted to £10,000.

For now, pension tax relief continues to be available at the marginal rate (up to 45%). The Conservative manifesto did, however, include a pledge to increase the inheritance tax threshold on the family home (see below), to be funded by restricting the tax relief on pension contributions for people earning more than £150,000. We, therefore, expect changes to the pension tax relief regime and recommend high earners should consider paying pension contributions before 8 July 2015.

Major changes to the pension rules were introduced from 6 April 2015, as follows:

Flexible pensions may be drawn from defined contribution arrangements from 6 April 2015. The new rules permit as much or as little as is required to be drawn from private pension plans after the age of 55. This flexibility does not apply to defined benefit pension schemes, though members can transfer out of those schemes to benefit from the new rules up to a year before their normal retirement age, if appropriate and subject to advice. The new withdrawal options are:

  • Full withdrawal ‐ with up to 25% tax‐free and the balance taxed as income at marginal rates.
  • Ad‐hoc lump sums ‐ known as uncrystallised funds pension lump sums (UFPLS), as and when requested by the member, with up to 25% tax‐free and the balance taxed as income at marginal rates.
  • Flexi‐access drawdown ‐ flexible withdrawals that can be received at any level (up to the full plan value). Up to 25% can be taken as a tax‐free lump sum and subsequent withdrawals will be taxed as income at marginal rates.

The tax free amount is subject to a limit of 25% of any remaining LTA (or 25% of remaining uncrystallised pension funds if the member holds enhanced protection with a 25% lump sum entitlement), and LTA excess charges will continue to apply to funds crystallised in excess of the LTA at 25% for funds used to provide income and 55% for lump sums (though no excess charge will apply to those holding enhanced protection).

The 55% pension “death tax” is abolished – all pension funds may be passed on free of tax on death before age 75, but subject to any LTA excess charge on uncrystallised funds. Funds may be passed as a pension fund, which may continue to grow free of tax and from which the beneficiary may take tax free withdrawals as a regular income or lump sums, or may be paid to nominated beneficiaries directly as a tax free cash lump sum. 

If death occurs after age 75, funds may be passed as a pension fund, which may continue to grow free of tax and from which the beneficiary may take taxable withdrawals as a regular income or lump sums. Alternatively, the pension fund may be paid to nominated beneficiaries directly as a cash lump sum, subject to 45% tax. The facility to pass pension funds to charity on death free of tax remains.

The changes have material implications for the way in which pension benefits should be drawn and how death benefit nominations should be structured. Spousal bypass trusts become relatively less tax efficient compared to other options, but retain control advantages. More than ever, pension death benefits should be considered in light of overall succession / estate planning and we will provide individual advice to clients, as appropriate.


The ISA contribution limit increased to £15,240 for the 2015/16 fiscal year (£15,000 in 2014/15). The maximum investment into Premium Bonds has been increased to £50,000 per person (previously £40,000 per person) from 1 June 2015.

Changes to ISAs were announced and are expected to be implemented in autumn 2015, as follows:

  • ISAs will become more flexible. Individuals will be able to withdraw and replace money from their cash ISAs during the year without funds losing their tax‐free ISA status. Currently, it is not expected that this will extend to Stocks and Shares ISAs. The list of qualifying investments will also be extended.
  • A Help to Buy ISA will be introduced for first‐time house buyers. The scheme will provide a government bonus of £50 for every £200 saved in the Help to Buy ISA, up to a maximum of £3,000 on £12,000 of savings, payable when the funds are used to purchase a property. The bonus will be available on homes that are worth a maximum of £450,000 in London and £250,000 in all other areas of the UK.


Income tax

The tax‐free personal allowance increased to £10,600 for the 2015/16 fiscal year (£10,000 2014/15) and continues to reduce by 50p for each £1 of income above £100,000, resulting in an effective tax rate of 60% for taxable income between £100,000 and £121,200.

The basic rate of tax remains unchanged (20%) and applies to the next £31,785 of income above the personal allowance. The higher rate (40%) threshold increased to £42,385 for the 2015/16 fiscal year (£41,866 2014/15) and the additional rate (45%) threshold remains at £150,000. The Conservative Party manifesto pledged to “raise the 40p income tax threshold to £50,000”, though the details and timetable for this to be implemented are yet to be confirmed.

From 6 April 2016, a new personal savings allowance – for basic rate taxpayers the first £1,000 (or £500 for higher rate taxpayers) of income from savings interest is to be tax‐free. Additional rate taxpayers will not receive such an allowance.

The transferable tax allowance for married couples, which enables an individual to transfer a portion of their unused personal allowances to their spouse, has increased to £1,060 (that is, 10% of the standard personal allowance), though this is only available where neither person pays tax in excess of the basic rate. 

Paper tax returns are to be abolished for individuals and small businesses by 2020 through the introduction of a real‐time digital tax account. It will be interesting to see if this system is delivered on time.

Capital gains tax (CGT)

CGT rates remain at 28% for higher and additional rate taxpayers, and 18% for basic rate taxpayers. The annual exempt amount increased to £11,100 for the 2015/16 fiscal year (£11,000 2014/15).

From 6 April 2015, non‐UK resident individuals, trusts, personal representatives and close companies will be subject to CGT on gains accruing on the disposal of UK residential property. Non‐UK resident individuals will be subject to tax at the same rates as UK taxpayers. Non‐UK resident companies will be subject to tax at the same rate as UK corporates (20%) and will have access to an indexation allowance. Note the legislation may not apply to non‐residents who reside in jurisdictions with which the UK has a double tax treaty which exempts such persons from UK CGT.

Having committed to not increasing the rates of income tax, national insurance or VAT, it is possible that the Chancellor will use CGT as a means to raise tax revenue and as such the rates of CGT may increase, and / or the annual exempt amount reduced, though, at this stage, the details of any changes are unspecified.

Inheritance tax

The nil rate band remains at £325,000, and is expected to remain at the same level until the end of the 2017/18 fiscal year.

The Chancellor announced a review of inheritance tax avoidance through "deeds of variation" in his budget on 18 March 2015, and the Conservative Party manifesto pledged to “take the family home out of tax for all but the richest by increasing the effective Inheritance Tax threshold for married couples and civil partners to £1,000,000, with a new transferable main residence allowance of £175,000 per person”. Further details are awaited.

We will prepare a further update after the Budget on 8 July 2015 and will, of course, continue to regularly assess client portfolios in the context of the overall investment planning objectives, as well as legislative and tax changes.

To discuss this note or any other matter, please contact Nick Fletcher on 020 3696 6801, David Lovell on 020 3696 6802 or any member of the London Wall Partners technical team on 020 3696 6808.