Individual Savings Accounts (ISAs)
As previously announced, the annual allowance will rise to £7,200 - a meagre increase given the allowance had been frozen at £7,000 since inception and despite industry lobbying for an increase to at least £10,000. Up to £3,600 of the allowance can be saved in cash with one provider. Investors can transfer money saved in cash ISAs into stocks and shares ISAs, and all Personal Equity Plans will automatically become stocks and shares ISAs.
VENTURE CAPITAL SCHEMES
Overview
This measure affects the Enterprise Investment Scheme (EIS), the Corporate Venturing Scheme (CVS) and the Venture Capital Trust (VCT) scheme. Further restrictions have been added to the list of qualifying investments which will now exclude shipbuilders and coal and steel producers. In practice, we think this will make little difference as such firms are unlikely to have been eligible on other grounds, such as size and domicile.
The limit on the amount invested on which an investor can claim EIS income tax relief in any one year will be increased from £400,000 to £500,000.
Operative date
For EIS, the changes to qualifying activities will have effect for shares issued on or after 6 April 2008, but the change to the investment limit can only have effect once the European Commission has given approval. When State Aid approval is received, the new limit will be brought into force but will have effect on and after 6 April.
For CVS, the changes to the qualifying activities will have effect for shares
issued on or after 6 April 2008.
For VCTs, the changes to the qualifying activities will have effect for money raised on or after 6 April 2008 (but not for money derived from the investment of money raised before that date).
Overseas pension schemes
A measure will be introduced to ensure UK tax relief and charges for funds in overseas pension schemes equate to those in registered UK pension schemes. This measure will take effect from 12 March 2008 for overseas money purchase pensions schemes and from 6 April 2008 for overseas defined benefit pension schemes.
Pensions: Regulation making powers
Listed payments in the Finance Act 2004 that are made by a registered pension scheme to a member are authorised and chargeable to income tax. All other payments are unauthorised and therefore currently taxable at a rate of up to 70% of the payment. Certain payments can be deemed to be authorised, but not taxed as authorised i.e. they are not chargeable to income tax at all. New legislation to be introduced in Finance Bill 2008 will allow these payments to be taxed in the same way as other authorised payments.
The current trivial commutation rules allow people who have small pension pots to take the whole lot as a cash lump sum, of which 25% remains tax-free. Members have had the chance to take benefits under the total value, if all of an individual’s pension benefits amounts to less than 1% of the lifetime allowance i.e. currently less than £16,000. New rules will make it possible to commute some small ‘stranded pots’ as well as pension savings below £2,000 in occupational pension schemes in addition to this limit.
Pensions: Technical Improvements
Three small changes will be made to the draft legislation published in the PBR 2007, making the rules more forgiving for how the lifetime allowance test benefit operates for pension increases:
• Pension increases of £250 or less per annum will be exempt from the test.
• A provision for rounding.
• A change to the RPI reference month. This will allow schemes to use RPI figure for any month which is within 12 months before the increase in pension.
These changes will effectively provide an exemption from the lifetime allowance test for small annual increases in pensions and rounding. It also allows for greater flexibility in the choice of the RPI reference month.
Pensions: Approved Occupational Pension Schemes
Employers who contribute to occupational schemes will be affected by this measure.
In calculating its corporation tax liability, between 1 April 2004 and 5 April 2006, a company should only be able to deduct pension costs to the value of actual pension contributions paid in the year. This retrospective action will ensure that deductions will not exceed the amount paid in contributions.
PENSION SAVINGS AND INHERITANCE TAX
Overview
Alternatively Secured Pensions (ASPs) could become a more viable retirement income option following Budget changes that will reduce IHT liability on the schemes.
Changes to IHT provisions to allow the transfer of an unused IHT allowance to the surviving spouse or civil partner on death, to be included in the Finance Bill 2008, will also apply to ASPs.
The new rules will mean any proportion of unused nil-rate band when the original ASP owner died will be applied to increase the nil-rate band in force when the dependant dies. This new boosted nil-rate band will be available to offset against the remaining ASP fund.
CHILD TRUST FUND: VOUCHER REQUIREMENT
Overview
From April 2009, the requirement for providers to receive the CTF voucher from parents before opening an account will become voluntary rather than mandatory. This may help to marginally reduce the number of parents who lose the paper voucher. However, there has been no change to the annual £1,200 allowance that can be invested by parents on behalf of their children.
This measure will remove the need for the voucher to be collected by CTF providers and distributors as part of the account opening process. Instead of the parent handing over the voucher, CTF providers and distributors will be able to open accounts using essential information from the CTF voucher provided by the customer, such as the unique reference number, the child’s date of birth and the voucher expiry date. This change will allow, for example, telephone and internet applications for CTF accounts to be made in a single paperless transaction without the need for the customer to post the voucher separately.
INDIVIDUAL SAVING ACCOUNTS AND NORTHERN ROCK BANK
Overview
Investors who withdrew monies from their Northern Rock Individual Savings Account (ISA) between 13 and 19 September 2007 will be allowed to reinvest them in a new ISA without affecting their annual allowance.
The ISA Regulations will be amended so that:
1. Qualifying Northern Rock investors can re-invest their withdrawn funds with the same or a different ISA provider; and
2. The re-investment does not count towards that investor’s annual ISA subscription limit.
