The mini-budget on 8th July 2015 made a number of changes, few of which are surprising, and hinted at some more radical changes for the future. The most significant immediate change was to the annual allowance, reducing it on and after 6 April 2016 for additional rate tax payers (those earning £150,000 per annum or more) by £1 for each £2 by which their income exceeded £150,000, with the annual allowance not able to fall below £10,000. This may cause a particular challenge for defined benefit schemes with additional rate taxpayers, as it may require significant calculation and administration to assess what liability may be due.
Other expected changes include the reduction of the 45% tax rate to the marginal rate for lump sum benefits provided on death over age 75 (to match the treatment of drawdown amounts) and the reduction of the lifetime allowance to £1 million from next year, and then to increase by indexation. Other changes that had not been heralded, but which were unsurprising, were the delay of the market in secondary annuities until next year, and the extension of PensionWise to those age 50 to 55.
There were however some suggestions of other changes in the future. A short green paper entitledStrengthening the incentive to save: a consultation on pensions tax relief was also published which questioned whether the fundamental form of pensions tax relief (contributions and fund growth being tax exempt, and the payment of pensions being taxed) should be changed. The paper is neutrally worded, but suggests that the ISA system, by which contributions are taxed, but growth and payment are not, may be worth considering. Much more information will be needed before we have an indication of the government's actual intentions, but certainly issues are being considered.
In addition, the budget suggested that salary sacrifice arrangements are being monitored, which suggests that the government may legislate in the future to disallow them. In addition, similar concerns have been raised about EFRBS, which may also be subject to attack in future budgets.