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Budget 2014

Budget 2014: Income tax changes and other odds and ends

The higher rate threshold is rising for the first time in a few years to £41865 from 06/04/14 but it is not a significant increase and certainly doesn’t keep step with any measure of inflation!

Personal allowances rise to £10000 and to £10500 in the following year.

The other rate thresholds remain unchanged at £100,000 when you start to lose personal allowances and £150,000 when the tax rate rises to 45%

For married couples or persons in a civil partnership, it will be possible, provided neither is a higher rate taxpayer to switch unused allowances from one to the other from 6th April 2015. But before you get excited, it’s a maximum of £1050 so saving up to £210!

Residential Property relief

When you sell a property that you have lived in at some time, but may have been rented out meantime, it was formerly the case that you could automatically claim that the last three years of ownership was used by you as a private residence even if you didn’t live in it at all in those last three years. This had the effect of reducing the amount of Capital Gains Tax you would pay on a sale and potentially increasing the amount of letting relief available.

From disposals on or after the 5th April 2014 (in other words THIS tax year) the exemption is being reduced from 36 months to 18 months, and in my opinion may reduce further in later years as it is one of those odd tax anomalies that makes no real sense (although it is valuable!)

Pensions changes

From April 2015, the currently tight reins on pension fund cash, effectively preventing the “pensioner” getting his or her hands on the money, is being changed to allow the funds to be withdrawn from the pension fund and held by the individual.

The cynical amongst us would say that HMRC hopes that many people will seize the opportunity to grab their cash and will therefore end up paying chunks of tax at the point of drawdown, instead of HMRC having to wait to get tax on the pension earnings spread over 20 years or more and in much smaller amounts

Savings and Investments

ISA allowances are increasing and there is a bit more flexibility made by creating a new single ISA. The limit is £15000 from 1st July 2014.

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