The Devil and the Detail
OK, so now all the fuss has died down after yesterday's Budget here's the fallout. What we've done (by 'we've' there I mean mainly Ms Bruun as usual) is to have trawled through all the detailed stuff that gets churned out by the government guys following every Budget and picked out all the pension bits. With any luck we've got them all and we're publishing them, or providing links to them, here for you. I know, we're all heart. Enjoy...
23 April 2009
First from the HMRC website:
Wednesday 22 April
The Chancellor of the Exchequer presented his 2009 Budget to Parliament on 22 April. From this page you can find all of the published Press Notices, Budget Notes, and other related supplementary documents by following the links on the left menu.
Summaries of the main announcements which affect HMRC`s customers and links to more details are also outlined below.
Additional publications relating to the Report will also be available from the HM Treasury Web Site (new window).
HM Treasury has also provided a separate microsite (new window) highlighting all the key points of how the Budget will affect you.
Main announcements affecting HMRC customers
- Personal Tax and Individuals
- Tax Relief on Pension Contributions
- Business Payment Support Service
- Business Tax - Corporate and Self Employed
- Compliance Proposals
- Review of Powers
- VAT Changes
- Excise Duties
- Stamp Duty Land Tax
Point 2 being the most interesting to BeeHive readers:
Tax Relief on Pension Contributions
The Chancellor has announced that, starting in 2011-12, tax relief on pension contributions will be restricted to basic rate for individuals with an annual income of £150,000 or higher.
In anticipation of this change, there will be special rules which will apply from Budget Day (22 April 2009) to prevent people from making large additional contributions to their pensions before then in order to benefit from higher rates of tax relief while it is still available.
These changes do not affect the vast majority of individuals. They affect only those who have a total annual income of £150,000 or higher in the current tax year or in either of the preceding two tax years. More information is in Budget Note 47 and in the guidance notes:
- Pension Schemes - Limiting Tax Relief for High Income Individuals (Guidance for Industry)
- Pensions - Limiting Tax Relief for High Income Individuals (Guidance for Individuals)
- Pension Schemes - Limiting Tax Relief for High Income Individuals Special Annual Allowance
- Pensions - Special Annual Allowance Charge
Budget Note 47 is very important:
Pensions: Limiting tax relief for high income individuals (Anti-Forestalling)
Budget 2009 Notes
Portable Document Format (PDF) files
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These documents were published immediately after the Chancellors speech today 22 April 2009.
- 2009 Budget Notes in one PDF file (PDF 182K)
- BN01 - Additional Rate of Income Tax and Income-Related Reduction of the Personal Allowance from 2010-11
- BN05 - Taxation of Foreign Profits
- BN14 - Life Insurance Companies: Consultation Outcomes and Simplification
- BN15 - Financial Services Compensation Scheme: Payments Representing Interest
- BN36 - Transfers of Income Streams
- BN37 - Disguised Interest
- BN38 - Anti-Avoidance: Interest Relief
- BN43 - Stamp Duty Land Tax, Capital Allowances and Tax on Capital Gains: Alternative Finance Investment Bonds
- BN47 - Pensions: Limiting Tax Relief for High Income Individuals (Anti-Forestalling)
- BN48 - Taxation of Payments from the Financial Assistance Scheme
- BN49 - Avoiding Unintended Tax Consequences in Relation to Pension Savings
- BN51- Individual Savings Accounts (ISAs): Increasing ISA Limits for People Aged 50 and Over and Increasing ISA Limits for All
- BN54 - UK Personal Allowances and Reliefs for Non-Resident Individuals
- BN87 - Reclaiming Income Tax, Capital Gains Tax and Corporation Tax Overpayments
- BN88 - Review of HMRC Powers, Deterrents and Safeguards: Payments, Repayments and Debt
Press Notice 01 from HM-Treasury
Pension tax relief
The Government announces that from April 2011 tax relief on pensions contributions will be restricted for those with incomes over £150,000. From that level of income the value of pensions tax relief will be tapered down until it is 20 per cent for those on incomes over £180,000, making it worth the same for each pound of contribution to pension entitlement as for a basic rate income tax payer. The Government will consult on the implementation of this measure.
In anticipation of this change, the Government is also introducing legislation to prevent individuals taking advantage of the pensions tax relief while it is still available to them at a higher rate, by making substantial additional pension contributions prior to the restriction taking effect. Those who have never earned in excess of £150,000 are unaffected, as are those who continue with their regular pattern of contributions.
The Government is introducing measures to target support on lower income pensioners who may have seen a fall in their income from savings. From Autumn 2009:
- the first £10,000 of savings held by pensioners will not be taken into account for assessment of their entitlement to Pension Credit, Housing Benefit and Council Tax Benefit. This will increase the income of around 540,000 Pension Credit claimants who have savings above the current disregard level of £6000. They will benefit by around £4 per week; and
- Pension Credit recipients who may have overpaid tax on their savings income in the past 6 years will be contacted as part of a taxback campaign. This campaign will encourage people to claim tax back on savings income and, where possible, register to avoid overpaying tax in future. Those who claim are expected to receive around £200 on average.
Support for pensioners
Building on the Government's commitment to help pensioners, Budget 2009 announces an additional payment of £100 to households with someone aged 80 or over and £50 to households with someone aged 60 or over, to be paid alongside the Winter Fuel Payment in 2009-10.
As announced at the 2008 Pre-Budget Report the personal allowance for under 65s will increase above indexation to £6,475. Age related allowances have been increased in line with inflation to £9,490 for people aged between 65-74 and to £9,640 for those aged 75 and over. This will mean that in 2009-10 no one aged 65 or over need pay tax on an income of up to £183 a week. The basic rate of tax will remain at 20p, and the higher rate of tax will remain at 40p.
7. The basic personal allowance provides an amount of tax free income. All individuals entitled to the basic personal allowance receive the same amount. From 2010-11, the basic personal allowance will be subject to a single income limit of £100,000. Where an individual’s adjusted net income (see paragraph 9) is below or equal to the £100,000 limit, they will continue to be entitled to the full amount of the basic personal allowance.
8. From 2010-11, where an individual’s adjusted net income is above the income limit of £100,000, the amount of the allowance will be reduced by £1 for every £2 above the income limit. The personal allowance will be reduced to nil from this income limit instead of the two-stage reduction announced at the Pre-Budget Report.
9. “Adjusted net income” is the measure of an individual’s income that is used for the calculation of the existing income-related reductions to personal allowances those aged between 65 and 74, and for those aged 75 and over. Adjusted net income is calculated in a series of steps. The starting point is “net income” which is the total of the individual’s income subject to income tax less specified deductions, the most important of which are trading losses and payments made gross to pension schemes. This net income is then reduced by the grossed-up amount of the individual’s Gift Aid contributions and the grossed-up amount of the individual’s pension contributions which have received tax relief at source. The final step is to add back any relief for payments to trade unions or police organisations deducted in arriving at the individual’s net income. The result is the individual’s adjusted net income.
10. The tax rates for charges applying to registered pension schemes are generally linked to the highest rate of income tax. There are existing powers to vary the rates for some of these charges by Statutory Instrument. This measure includes powers to vary the rates for the remaining charges, again through secondary legislation, taking into account the new additional higher rate of income tax.
The most interesting chapter – a few excerpts:
Individual Savings Accounts:
5.42 Building on recent changes which increased investment limits for Individual Savings Accounts (ISAs) and made them more flexible, the Government is now taking targeted action to help people aged 50 and over with their savings. For the tax year 2009-10, the annual ISA investment limit will increase for everyone aged 50 and over. Individuals will be able to save £10,200 in their ISA, up to £5,100 of which can be saved in cash. To allow ISA providers time to adjust their systems, deposits above the current ISA allowance can only be made from October 2009.
5.43 This will enable people who have retired or are beginning to prepare for retirement to move taxed savings into a tax-advantaged ISA, rewarding those who have saved by improving their returns.
5.44 The Government also recognises that people need to be supported to save as the economy emerges from the downturn. The Government will therefore extend these increases in the ISA limits to everyone from 6 April 2010. The annual ISA investment limit will increase for every adult to £10,200, up to £5,100 of which can be saved in cash.
5.45 This will give over 18 million ISA holders the opportunity to increase their taxadvantaged savings and directly benefit over five million individuals who make full use of either their cash or their overall investment limits.
5.46 The Saving Gateway uses matching (a government contribution for each pound saved) to encourage saving for working-age people on lower incomes and to promote engagement with mainstream financial services. The Saving Gateway will be introduced nationally, with the first accounts available in 2010. To provide a strong and easily understood incentive to save, the Government will contribute 50 pence for each pound saved in the scheme.
5.47 The Saving Gateway Accounts Bill is currently before Parliament. The Government has sponsored an amendment to the Bill, to provide that recipients of Carer’s Allowance will be eligible to open Saving Gateway accounts, meaning that around half a million claimants of Carer’s Allowance will now be eligible. Overall, around eight million people will be eligible for the scheme.
Supporting People in Later Life:
5.52 The Government is committed to tackling pensioner poverty, promoting greater independence and well-being in later life, encouraging and rewarding saving, and enabling people to meet their income aspirations in retirement. In seeking to achieve this it provides incentives for people to save for their retirement, and supports all pensioners, with additional support targeted on those who need it most. In the downturn the Government’s priority remains to support the most vulnerable.
5.53 Between 1996-97 and 2006-07, pensioners’ incomes rose by 29 per cent in real terms. The basic State Pension has increased by seven per cent in real terms since 1997, while the introduction of Winter Fuel Payments helps older people to keep their homes warm. The Government also provides free off-peak bus travel, free eye tests and free prescriptions for those aged over 60, while those aged over 75 also receive a free television licence.
5.54 The Government introduced Pension Credit in 2003, guaranteeing a minimum income for pensioner households while rewarding those who have made modest additional provision for their retirement. In 2008-09, no single pensioner needed to live on less than £124 a week whereas in 1997 the poorest pensioners had to live on around £69 a week, an increase of over a third in real terms. The Government spent over £13 billion more in 2008-09 on pensioners than it would have if the policies in place in 1997 had continued, with around half of this expenditure going to the poorest third of pensioners. Overall, 900,000 pensioner households have been lifted out of relative poverty since 1997, and a pensioner is now no more likely to be in poverty than someone from the population as a whole.
5.55 In the 2008 Pre-Budget Report the Government set out further action to support pensioners, especially those on lower incomes, through the global economic downturn. This included:
an above-indexation increase in the standard minimum income guarantee in Pension Credit which means no single pensioner need live on less than £130 a week in 2009-10 and no pensioner couple on less than £198 a week; a £4.55 a week increase in the full basic State Pension to £95.25 a week in 2009-10, effectively brought forward to January 2009 by making a payment of £60 to each pensioner earlier this year; and
an increase in the age-related tax allowance to £9,490 for those aged between 65 and 74, and to £9,640 for those aged over 75.
5.56 Budget 2009 announces additional targeted support for pensioners to ensure they continue to receive support where it is needed most.
5.57 The Government has committed to pay Winter Fuel Payments of £200 for households with someone aged over 60, and £300 with someone over 80, for the lifetime of this Parliament. To provide further support, Budget 2009 announces an additional payment this winter, worth £100 for households with someone aged over 80 and £50 for households with someone aged over 60. This will increase this winter’s payments to £400 for households with someone aged over 80 and £250 for households with someone aged over 60.
5.58 Historically low interest rates have particularly impacted on pensioners, who are more likely than people of working age to draw income from savings. The increases in ISA limits announced in the Budget will help those pensioners who pay tax on their savings. To provide additional support to lower-income pensioners who receive income from savings the Government will:
raise the capital disregard in Pension Credit, and pensioner-related Housing and Council Tax Benefit, from £6,000 to £10,000 in November 2009. This will increase the income of 540,000 pensioner households by £4 per week on average; and
launch a new tax back campaign, contacting all 2.7 million Pension Credit recipients to encourage them to claim back tax they may have overpaid on their savings income and, where possible, register to receive interest on their savings tax-free in future. This will be worth £200 on average to those pensioners who have overpaid tax in the past.
5.59 By shopping around, people can increase their retirement income by up to 20 per cent. This is especially important in the downturn. The new Moneymadeclear website and helpline will be available to support people across the UK who are approaching retirement, to work out their options and help them to find the best annuity deals. This will build on the Government’s existing work to help people to get the most out of their pension savings.
5.60 Demographic trends will result in a substantial increase in the number of people in need of care and support. Delivering a care and support system that meets the aspirations of everyone who needs care, while coping with increased demand for support, requires more than incremental increases in social care funding – it requires a radical rethink of the way the state helps people with care needs. Following extensive public engagement, the Government will in June consult in a Green Paper on a range of options to reform the existing social care system and other forms of support, to create a new offer for people who need care and support.
5.61 Reforms to make the state pension fairer and more widely available will be implemented in April 2010 including a reduction in the number of qualifying years required for entitlement to the full basic State Pension and reforms to the system for crediting those with caring responsibilities to reflect the different ways in which people contribute to society. As a result of these changes around 70 per cent of women reaching state pension age will be entitled to a full basic State Pension compared to 50 per cent without reform. By 2025 around 90 per cent will be entitled to a full basic State Pension. Building on these reforms, the Government announces that grandparents and other adult family members who care for their grandchildren or other members of their family aged 12 or younger for 20 hours or more a week will be able to gain National Insurance credits toward the basic State Pension from April 2011.
5.62 In addition to making more people eligible for a state pension, the Government has legislated to increase its generosity by introducing the earnings uprating of the basic State Pension. The Government remains committed to introduce earnings uprating of the basic State Pension in 2012-13, subject to affordability and the fiscal position, or in any event by the end of the next Parliament at the latest. This commitment ensures the balance is struck between meeting the challenges identified by the Pensions Commission and ensuring the sustainability of the Government’s pension reforms.
5.63 Budget 2009 also announces changes to ensure that the pensions tax system responds to recent policy developments (see paragraphs 5.90 to 5.95). The Government will also introduce minor changes to the pensions tax system in Finance Bill 2009, including the power to provide for payments from the Financial Assistance Scheme and the Financial Services Compensation Scheme to receive equivalent tax treatment as if they had been received from the original pension scheme or insurer.
This is for the number crunchers where everything is tabled and transformed into figures, but here’s a few points.
A.21 From April 2011, grandparents and other family members will be able to gain National Insurance credits toward the basic State Pension for caring for their grandchildren or members of their family aged 12 or younger, for 20 hours a week or more. (-)
A.22 As announced at the 2008 Pre-Budget Report, from 6 April 2009, the standard minimum income guarantee in Pension Credit increased above indexation to £130 a week for a single pensioner and to £198.45 a week for a pensioner couple. (ae)
A.23 The Government will launch a campaign that includes contacting all Pension Credit recipients to help pensioners to claim back tax they have overpaid from the last six years.
A.24 From November 2009 the capital disregard for pension credit and pensioner related Housing and Council Tax Benefit will increase from £6,000 to £10,000. (18)
A.25 Higher rate pension tax relief will be tapered down to 20 per cent for those with incomes £150,000 and over from 2011-12. Anti-forestalling provisions will be introduced with effect from 22 April 2009. (45)
A.26 As announced at the 2008 Pre-Budget Report, the lifetime allowance will be maintained at the 2010-11 level of £1.8 million for a further five years, up to and including 2015-16. The annual allowance will also be held constant at £255,000 over the same period. (af )
A.27 As announced at the 2008 Pre-Budget Report, a £60 payment was paid to each pensioner, and other recipients of the Christmas Bonus, between January and March 2009. An additional £100 will be paid to households with someone aged over 80 and an additional £50 to households with someone aged over 60 alongside the Winter Fuel Payment in winter 2009-10. (16)
A.181 As announced in the 2007 Pre-Budget Report, the introduction of the Upper Accruals Point for the Second State Pension will take effect from 6 April 2009. (h)
And one final bit from Chapter 6 of the Budget that might interest everybody:
6.49 To manage the increasing pension costs associated with rising longevity, public service pensions are also being reformed:
- new arrangements for the Teachers scheme and the Civil Service scheme came into force in January 2007 and July 2007 respectively, and new NHS and Local Government Pension Schemes have been operating since April 2008;
- mechanisms, such as cost sharing and a cap on employer contributions, have been put in place to ensure future sustainability and affordability; and
- in the three central government schemes, the normal pension age has been increased from 60 to 65 for new entrants and, in the local government scheme, arrangements have been made to phase out a rule that has enabled some staff to take a pension before they reach the scheme’s normal pension age of 65 without a reduction for early payment.
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