An opportunity to pay less tax on your income in retirement.

3rd December 2014

WEALTH at work’s response to the Autumn Statement 2014.

The Chancellor has confirmed that in addition to the pension changes announced in the Budget, he will be scrapping the death tax on pensions and from joint life and guaranteed annuities for those who die before the age of 75. He also announced that from 3 December 2014, if an ISA holder dies, they will be able to pass on the value of their ISA savings as an additional ISA allowance to their spouse or civil partner.

In relation to ISAs, the Chancellor also announced:

• The annual allowance will increase from £15,000 to £15,240 for the 2015/16 tax year
• From 3 December 2014 a spouse or civil partner will be able to inherit the value of their deceased partner’s ISA savings.  This will be facilitated by an additional ISA allowance equivalent to the value of the deceased’s ISA at date of death. This additional allowance will have no impact on the spouse’s/civil partner’s own ISA annual allowance.

There is no need to take any immediate action as this rule will apply to anyone who passes away from 3 December 2014.  ISA funds left to a spouse or civil partner will of course continue to be free of Inheritance Tax (IHT) as the transfer will be covered by the spousal exemption. The main advantage is that the capital can remain within a tax efficient ISA wrapper.  It should be noted that the combined value of a surviving partner’s ISA account will ultimately be included in their own estate for IHT purposes.

Jonathan Watts-Lay, Director, WEALTH at work, said, “It is now possible to pass on the value of ISA savings to your spouse or civil partner as an additional ISA allowance on your death, therefore not losing this valuable tax benefit.”

“For many, tax on savings and income is becoming optional for those who save wisely for retirement. In the new world of pension flexibility, those approaching retirement need to think about all of their savings, and not just their pension, as possible sources of retirement income. With the right advice it is possible to make sure they don’t pay any unnecessary tax. For example, why draw taxable pension income over your personal allowance if you can use ISA savings to help meet your income needs in retirement? It is important to consider the many opportunities available to maximise allowances and reliefs to potentially reduce your tax liability.”