Individual savings, personal pension plan… what’s new in the UK?

By Bérangère Hassenforder, Anthony & Co UK Ltd

As a reminder, an individual savings account provides a tax free environment for savings. On 1 July 2014, all ISAs became New ISAs or NISAs. The government changed the name to reflect the increased limits and flexibility that are available to account holders. From 1 July, the annual allowance is increased and individuals are able to save up to a maximum of GBP 15,000 in this efficient tax wrapper for the 2014/15 tax year.

At the same time, the annual contribution limit to a JISA (Junior ISA) increases to GBP 4,000. Cash can now be mixed with stocks and shares in a NISA. In addition, those aged 16 and 17 will be able to subscribe up to GBP 15,000 into a cash NISA from 1 July 2014. However, they cannot hold a stocks and shares NISA. This will create some planning opportunities for those who need to fund higher education.

More positive changes: to the pension legislation

On 29 September 2014, the Chancellor announced a major positive change in relation to pension death benefits, which means the funds left in one’s defined contribution plan, such as a personal pension plan upon death. In the current system, a 55% tax charge would apply to anyone who has started taking their pension and anyone age 75 or over. Only those who die before 75 can pass on their retirement fund tax free if they have not accessed it.

Under the new system, the 55% tax rate will no longer exist. Anyone who dies before reaching the age of 75, regardless of whether they have or have not started their pension, will be able to give their remaining retirement funds to anyone as a lump sum or as flexi-access drawdown completely tax-free.

Those aged 75 or over, again irrespective of whether they are drawing their pension, will be able to pass on their remaining retirement fund to any beneficiary who will then be able to take it as a drawdown pension at their marginal rate of income tax, or as a lump sum. This measure will apply to all payment made after 5 April 2015.

Following the flexibility on access to retirement funds introduced earlier this year, the removal of this 55% tax charge on death benefits will now allow pensions savings to become a real transmission vehicle.

Bérangère Hassenforder
Anthony & Co UK Ltd, London, UK
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published: November 2014

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