Budget in brief
The Budget focused on three areas: reducing the annual allowance for high earners; aligning pension input periods with tax years; and changing the way lump sum death benefits are taxed. The mechanism to implement these changes, the Finance (No 2) Bill 2015 is currently weaving its way through Parliament and is expected to be passed by 20 October 2015.
More specifically, the Chancellor announced the following:
- From April 2016, the annual allowance will be tapered for those earning over £150,000. It will be reduced by £1 for every £2 that their income exceeds that figure, up to a maximum reduction of £30,000.
- The 2016/17 tax year will mark the abolition of Pension Input Periods. Currently, they do not follow the tax year and this has long been a source of frustration for many. The Bill seeks to align the Pension Input Period with the tax year to facilitate the annual allowance taper.
- The Bill will limit the cases where the 45% special lump sum death benefits charge applies. Instead of imposing a prescriptive rate, these benefits will be taxed based on the marginal rate of income tax that applies to the recipient. It is predicted that this will create a fairer system of taxation.