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There were no surprises in George Osborne's Autumn Statement to match the seismic pension changes in his last Budget. However, he did pull one rabbit out of the hat for savers in the shape of new inheritability of ISAs for married couples. He also confirmed how pension wealth can be cascaded down the generations.

ISA inheritability
ISA savers will benefit from two positive changes:

·         The annual allowance will increase to £15,240 from £15,000 from April 2015. There was NO mention of a lifetime cap for savers.

·         From today, spouses and civil partners will be able to inherit their deceased partner's ISA fund and retain the tax advantages of the wrapper. There will be no impact on the spouse's/civil partner's own ISA annual allowance.

ISA accounts left to a spouse or civil partner will of course continue to pass IHT free as before - the transfer itself being covered by the spousal exemption. The big difference is that the continuing returns on a deceased partner's savings will be tax free.

The combined value of a surviving partner's ISA account will ultimately be included in their own estate for IHT. Those near to or already over age 55 may want to consider moving these savings into a pension, potentially allowing the pension fund to be passed on to their children and grandchildren tax free.

Pension freedoms confirmed
Today's confirmation of the new DC pension death benefit regime puts the final icing on the cake for next April's world of ‘freedom & choice'.

·         On death before 75, any death benefit will be paid tax free within the Lifetime Allowance (LTA). In a change from the original proposals, this will now apply to survivors' annuities and pension guarantee payments as well as inherited drawdown pots.

·         On death at 75+, death benefits will be taxed as the recipient's income, when they draw the funds. For 2015/16 only, non-drawdown lump sums will be taxed at a flat rate of 45% - but income tax will apply to all post-75 death benefits from 2016/17 onwards.

·         The old tax distinction between crystallised and uncrystallised pots is gone. Within the LTA, the sole determinant of tax treatment will be the deceased's age at death.

·         Any individual beneficiary of a flexible pension can choose to keep their inherited pension pot in the drawdown wrapper and decide when (or if) they draw down on it.

These changes transform the wealth transfer planning equation. This places flexible pensions at the heart of inheritance planning going forward, opening up exciting new advice opportunities.

On the flip side, as widely expected, those accessing the new freedoms will pay the price of a reduced £10k ‘money purchase' Annual Allowance and no future carry forward.

·         This sends a clear message to maximise pension funding before accessing the new flexibility.

·         And the exemptions for existing capped drawdown users, and those only drawing tax-free cash after April, position advice as the map to navigate this tax minefield to keep options open.

Other pension news

·         State pensions: The new single-tier State pension from April 2016 will be at least £151.25, with the final figure being confirmed next Autumn. Meantime, the Basic State pension will be increased by 2.5% (to £115.95 for a single person) from April 2015 under the ‘triple-lock' guarantee.

·         Age 75: Following informal consultation, there will be no change to the 75 upper age limit for tax relief on pension contributions by individuals.

·         Means-testing: Fears that the new pension flexibility could lead to a lifetime's pension savings being deemed immediately available in means-testing assessments have been quashed. Assessments will be based on the annuity income the pot could provide, with higher income only being assessed if it's actually taken from the pot.

U-turn on IHT settlement nil rate bands
The Government has confirmed that it has scrapped plans to introduce the IHT settlement nil rate band and replace it with new rules to be announced in next week's Finance Bill. The replacement rules will still seek to prevent tax avoidance through the use of multiple trusts.

The settlement nil rate band rules would have seen each settlor have just one nil rate band which they could allocate across all relevant property trusts that they've created. Trusts created before 7 June 2014 would have remained subject to the old relevant property rules, leaving two sets of complex rules operating in parallel.

The result could have saddled clients with trusts where the purpose is to accept the payment of death benefits, such as from life assurance contracts and pensions, with the burden of tax compliance and reporting, even where no inheritance tax is due.

We await the detail in the Finance Bill and hope that it delivers on the promise of simplifying the taxation of trusts and IHT.

Income tax
Minor changes were made to allowances and thresholds for the new tax year:

·         The personal allowance will rise to £10,600 in 2015/16 for those born after 5 April 1938. This is an additional £100 on what had been previously announced. At the same time, the level at which income tax becomes payable at higher rates will rise in line with inflation to £42,385 (from £41,865), meaning that higher rate taxpayers with incomes below £100,000 will also be better off by £224 - a little less pressure on the ‘squeezed middles'.

·         Age related allowances will remain at £10,660 for those born before 6 April 1938.

·         From the 2015/16 tax year, a spouse or civil partner who doesn't have income to fully use up their personal allowance will be able to transfer up to £1,060 to their partner, provided that the partner is a basic rate taxpayer.

More charges, less choice for the non-domiciled
The charge to use the non-domicile basis of taxation is increasing.

Non-domiciles who choose to use the remittance basis and have been resident for at least 7 of the past 9 years, currently pay a charge of £30,000.

This will increase to £60,000 (from £50,000 in 2014/15) once they've been resident for 12 out of 14 years.

And a new charge of £90,000 will be brought in for those who've been resident 17 of the last 20 years in the UK.

The Government will also consult on making the choice to pay the remittance basis charge stick for a minimum of 3 years, so that non-domiciles are not easily able to chop and change the basis on which they're taxed.

Non-domiciles' taxation remains in the spotlight and this is unlikely to change. As offshore bonds are not taxed until a chargeable gain arises, they may offer another way for non-domiciled individuals to control when and how they pay their tax.

~~The press was full of ‘pension bank account’ stories in October. Will it be that simple?
The Taxation of Pensions Bill, which will put most of the Budget 2014 pension changes into law, was published in mid-October. It contained few surprises, not least because it had been issued in draft in August, along with detailed explanatory notes. Nevertheless, the Treasury pumped out a press release and the media duly splashed the (old) news.
The emphasis in the press coverage was, to quote the Treasury release “Under the new tax rules, individuals will have the flexibility of taking a series of lump sums from their pension fund, with 25% of each payment tax free and 75% taxed at their marginal rate, without having to enter into a drawdown policy.” It was this reform which prompted the talk of using pensions as bank accounts.  However, things may not be quite that simple in practice:
• The new rules do not apply to final salary pension schemes, which may only provide a scheme pension and a pension commencement lump sum.

• It is already possible to make this type of 25% tax free/75% taxable withdrawal under the flexible drawdown provisions introduced in 2011. This has not proved very popular.

• The new rules are meant to come into effect on 6 April 2015, but they are not mandatory, so some pension providers may choose not to offer them. It seems likely that many occupational money purchase schemes will avoid any changes, as they were never designed to make payments out – that was the job of the annuity provider. Similarly many insurance companies may not be willing to offer flexibility on older generations of pension plan – just as some do not currently offer drawdown.

• The short timescale has been criticised by the pensions industry. Systems and administrative changes can only be finalised once the Bill has become law and that will be perilously close to April, making it difficult for providers to bring in the changes from day one.

• If you are able to take a large lump from your pension, the tax consequences could be most unwelcome. For example, drawing out £100,000 would mean adding £75,000 to your taxable income – enough to guarantee you pay at least some higher rate tax, regardless of your income, and quite possibly sufficient to mean the loss of all or part of your personal allowance. No wonder the Treasury expects to increase tax revenue as a result of the reforms.

• Ironically another of the pension reforms, reducing the tax on lump sum death benefits, could mean you are best advised to leave your pension untouched and draw monies from elsewhere.
The new pension tax regime will present many opportunities and pitfalls, not all of which are immediately apparent.  Do make sure you ask for our advice before taking any action.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

~~The latest data from the Office for National Statistics show that inflation is at a five year low.
The Consumer Price Index (CPI) fell to 1.2% in September, its lowest level since September 2009. A year ago it was 2.7% and in September 2011 the CPI peaked at 5.2%. The latest leg of the decline in inflation is partly due to a drop in food prices (about one tenth of the CPI “shopping basket”) which is running at -1.4% – yes prices are falling by 1.4% year on year thanks to good weather conditions, the supermarket wars and Russia’s decision to stop EU food imports. The recent sharp drop in oil prices has helped, too: transport inflation (15% of the basket) is running at just 0.1%.
Whereas his predecessor as governor of the Bank of England regularly had to write letters to the Chancellor explaining why inflation was running more than 1% above target (i.e. over 3%), Mark Carney is within 0.3% of having to justify inflation that is more than 1% below target. If that happens, Mr Carney will be able to say the UK is by no means unique: Eurozone inflation is just 0.4% and US inflation is 1.7%, both below target.
The low rate of UK inflation poses another problem for Mr Carney: what to do about interest rates. Over the last year the governor has consistently said that rates will rise, although his hints on timing have been somewhat variable. A 1.2% inflation rate eases the pressure on Mr Carney to act sooner rather than later. The Bank of England’s Chief Economist, Mark Haldane, said that in current conditions “somewhere in the middle of next year” was “not a bad bet” in terms of the first rate rise.
All of which means that if you are waiting for bank deposit rates to rise after over five and half years of 0.5% base rates, you probably have at least another six months to go – a situation which seems to have been the case for a considerable while…
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
 

  Nearly 4.5m people have now been automatically enrolled in a workplace pension, but the Pensions Regulator is worried about what happens next.
If you are an employer, the first fact you need to know about the auto-enrolment process for your business is your staging date; the date when you must have a suitable workplace pension arrangement in place, along with all the supporting administration.

~~Staging dates are determined firstly by your PAYE scheme size in April 2012 and secondly, from June 2015 onwards for employers with scheme sizes of less than 30, by PAYE reference numbers.  The first staging date was 1 October 2012 and the last, for new employers between July and September 2017, does not occur until 2018. So far it has only been large and medium-sized (60 or more employees) employers who have reached their staging dates. As a result, the 4.5m figure relates to fewer than 30,000 employers. In the next two years, as smaller employers reach their staging dates, the numbers of businesses (as opposed to employees) will soar. The graph below, published by The Pensions Regulator (TPR), makes the point.
Last month TPR issued a warning to small businesses to check their staging dates. This was prompted by research undertaken by the regulator which showed that nearly one in five small (5-49 workers) did not know their staging date, while among micro employers (1-4 workers), almost half were unaware. Even those who claimed to be aware of their staging dates were not that knowledgeable: only 43% of small employers and 28% of micro employers had dates that matched TPR’s own records.
The regulator says that businesses should start planning for automatic enrolment a year before their staging date. Given the surge in numbers that is due in the final quarter of 2015/16, an earlier start may be wise to avoid the inevitable rush.  If your business has done nothing about auto-enrolment yet, why not start talking to us now and, at a minimum, draw up a timetable for action?

HMRC have published details of ISA investments for the last tax year and they tell a strange story.
ISAs, which became NISAs on 1 July 2014, have long been popular with savers.

What is surprising is the heavy bias towards cash ISAs, despite the miserable, often sub-inflation, interest rates that have prevailed in recent years. While the amount invested in stocks and shares ISAs is not much increased from the level in the year ISAs were born, cash ISA contributions have more than tripled. However, in 2013/14 the new contributions to cash ISAs fell by about 5% and the number of contributors dropped by about 10%. Stocks and shares ISAs saw corresponding increases of 12% and 2%.
This might be a sign that ISA savers are growing more aware of the smallness of cash ISA tax benefits. Take, for example, the National Savings & Investments Direct NISA, which has one of the top instant access rates at 1.5%. Invest the maximum in 2014/15 of £15,000 – more than double last tax year’s maximum – and, if you are a higher rate taxpayer, your annual tax saving is just £90.  The same amount invested in a stocks and shares NISA holding a typical corporate bond fund yielding 3.5% gives a tax saving of £210.
One of the arguments for not choosing a stocks and shares ISA used to be that it was impossible to switch a cash ISA at a later date (although the opposite move was available). Since the arrival of NISAs on 1 July 2014, transfers between cash and stocks and shares have been possible in either direction.

If you hold cash NISAs, there are two things to do now:

• Check the interest rates you are being paid. Providers have been cutting NISA rates of late and if you have a chart-topping NISA from a few years ago, you could find it is now paying no more than 0.5%. 

• Talk to us about your NISA options. It may be better for you to pay tax on deposit interest and shelter your investment income and gains in a NISA.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

You can now opt for Individual Protection 2014 to protect your pension benefits. But should you?

The lifetime allowance (LTA) effectively sets the maximum tax-efficient value of all your pension benefits. In its first iteration, in April 2006, the standard LTA was set at £1.5m. It then gradually rose to £1.8m before being cut twice: to £1.5m in April 2012 and £1.25m two years later. Accompanying the LTA’s introduction and each cut, various ‘protections’ were made available to help those people who found the value of their benefits was – or might become – greater than the new allowance.
The 2014 reduction came with two different types of protection. The first, Fixed Protection 2014, had to be claimed before 6 April 2014 and basically fixed your LTA at a minimum of £1.5m, provided no more contributions were made or benefit accrued after the end of 2013/14. The second, Individual Protection (IP 2014), was legislated for in the Finance Act 2014 and HMRC only started accepting applications in August.
You are eligible to apply for IP 2014 if, on 5 April 2014:
• The value of all your pension benefits exceeded £1.25m; and

• You did not have primary protection (a 2006 protection option) in force.
If you opt for IP 2014, your personal LTA will become the greater of:
• The value of all your pension benefits as at 5 April 2014 (subject to a maximum of £1.5m); and

• The amount of the standard LTA at the time you draw benefits.
You will not lose IP 2014 if contributions are made or further benefits accrued. However, this will only be the case if the value of your pension fund(s) fall, as their 5 April 2014 value will normally be the upper limit of your LTA.
If you have no existing protection and are eligible for IP14, then it is worth claiming – even if you are now using income drawdown – because your LTA will rise above the standard £1.25m. If you have one of the two fixed protections or enhanced protection, the decision becomes more marginal and you should take advice.

  Interest rates will surely rise but the question is when? The answer seems to depend on the day of the week.
Last month offered a number of conflicting answers:
1. The Bank of England’s Quarterly Inflation Report  This was generally seen as suggesting that the first rate rise would be in the early part of next year. The Bank halved its forecast for earnings growth to 1.25%, which hardly suggests wage-driven inflation is around the corner. On the same day the Office for National Statistics said earnings (including bonuses) had fallen by 0.2% year on year.
 
2. Mark Carney’s Sunday Times interview  At the end of the week the Inflation Report was issued, the Sunday Times published an interview with the Bank of England’s Governor, Mark Carney. This produced the headline “Carney: rate hike before pay recovers,” which looked slightly at odds with the tone of the Inflation Report.

3. July inflation numbers  These came out two days after Mr Carney’s weekend press comments and once again tilted expectations towards a rise in the first quarter of 2015. Consumer Price Index (CPI) annual inflation fell to 1.6%, 0.3% below June’s figure and 0.2% less than consensus forecasts. The previous month had seen an unexpected increase, which July’s dip suggested was a blip, possibly due to the timing of summer sales.

4. Monetary Policy Committee Minutes  A day after the good news on inflation, the release of minutes from the Bank of England’s August meeting of the Monetary Policy Committee (MPC) showed two of the nine members voting for an immediate rate increase. It was the first time in over three years that there had not been complete agreement on holding a 0.5% base rate.
The will-they-won’t-they show returns in November, with the next Inflation Report. In the meantime, it would appear that the foreign exchange markets have decided UK interest rates will stay on hold until the New Year: in August the pound fell further against the dollar, leaving it about six cents down from its start of July  peak for 2014.
It’s still too tight to call, but savers may be able to see some light on the interest rate horizon soon.

~~The latest figures from the Office of National Statistics (ONS) show that the economy is finally breaking new ground.

The graph appears to say it all. Adjusted for inflation, the UK economy has at last outgrown the peak established in the first quarter of 2008. The Government hailed the figures as proof their policies were working, while others pointed to the six wasted years since the crash took hold. Either way, it was a very slow recovery (25 quarters) from a very deep recession (7.2% peak to trough). As the Office for National Statistics points out, even the impact of the 1979-1981 recession (5.9% peak to trough) was overtaken after 16 quarters.
Dig a little deeper into the numbers and the recovery has not taken the form hoped for by the Government and Bank of England. For all the talk of re-balancing the economy, it is the service sector which has driven the recovery. That sector is now 3% larger than in the first quarter of 2008, while the other three main sectors have all shrunk. Both the construction and production sectors are still over 10% smaller than six years ago.
The wrong type of growth is, as any politician will tell you, better than no growth. However, the weakness of the production and construction sectors – the latter fell 0.5% in the second quarter of 2014 – will weigh on the Bank of England as it moves ever nearer the point when it raises interest rates.

HMRC have published a list of tax avoidance schemes for which it wants up-front tax payments.
Two days before the Finance Bill became the Finance Act, the obviously eager HMRC issued a list of nearly 1,200 tax avoidance schemes. Frustratingly the list consisted only of the scheme reference numbers (SRNs), given under the Disclosure of Tax Avoidance Scheme (DOTAS) legislation, so there were none of the exotic names which have been making headlines in some of the national press.
Starting in August, HMRC intend to spend about 20 months using ‘accelerated payment’ powers given to them by the Finance Act 2014 to systematically ask the schemes’ users to pay the tax they thought had been avoided within 90 days. HMRC say that there are approximately 33,000 individual taxpayers and 10,000 companies involved, with over £7bn of revenue at stake.  HMRC have given no indication how they will progress through their long list, although some of the schemes could date back to 2004, when DOTAS was introduced.
Shortly after publishing the DOTAS list, HMRC issued a press release claiming that their High Net Worth Unit had brought in £1bn in “compliance yield”. The Unit, established in 2009, deals with the tax affairs of “the 6,200 wealthiest customers” of HMRC, each with net worth of £20m or more. It seems likely that a fair few of those special customers (sic) will have more opportunities to chat with their HMRC ‘relationship manager’ once the DOTAS list letters roll out begins.

~~The strength of the pound is showing up in welcome and unwelcome ways.
If you were heading off to Europe a year ago on holiday, you would have been offered, as a tourist, an exchange rate of around €1.115 for each pound.This year the rate as at the end of July was about €1.235, an increase of nearly 11%. Eurozone annual inflation is running at just 0.5%, so you are gaining more than 10% in purchasing power. It is a similar story if your destination is the USA, where last year’s $1.48 to the pound is now around $1.655.
The robust performance of the pound is quite a recent event and needs to be set against the sharp fall which the Bank of England allowed to happen during the financial crisis, as the graph below brutally demonstrates.

                                                                    USA $ v UK £

The recovery of sterling may now be making holidays less costly, but it is having a less pleasant impact on investors:
• UK companies are facing tougher competition abroad for their exports and, at home, more pricing pressure from imports.

• The profits those companies make overseas – whether as exports or in foreign subsidiaries – are being lost in translation. Last year’s $1m was worth about £660,000, but now it is just over £590,000.

• Dividends are being hit. Partly this is because of the profits impact, but it is also because many of the UK’s largest companies use the dollar as a base for their accounting and dividend payments rather than sterling.  For example, HSBC paid 10 cent interim in July 2013 and July 2014. For UK investors, the sterling dividend fell from 6.58p to 5.88p.
While the multinationals are suffering, smaller UK companies with a focus on consumer services are doing well, thanks to the recovering economy and much less foreign competition. Managers of UK equity income funds are therefore having to look beyond the big FTSE 100 names if they want to increase the dividend payments to their investors.