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Due to the evolving financial services market, the information contained within may no longer be current. To browse more recent content, please see our Knowledge page. summarises some of the changes affluent investors should be aware of in the the Budget Announcements 2015.

The Budget announced by George Osborne on 17 March has been broadly hailed as a great success, with the Chancellor’s optimistic message on the economy and boosts to several groups of taxpayers – particularly lower earners – going over particularly well.

Yet, as ever, the devil is in the detail. There are a number of elements to the Budget which may affect affluent investors significantly and it is important that individuals pay attention to the seemingly small changes as well as the larger, headline-grabbing ones.

Lifetime allowance slashed

While the annual pension contribution limit was kept at £40,000, from April 2016 the Lifetime Allowance limit will be lowered from £1,250,000 to £1,000,000 – a move which was anticipated, but has caused widespread consternation among both investors and their financial advisers as the limit stood at a far higher £1,500,000 just a few years ago. Commentators have also pointed out that under the current rules those with Defined Benefits pension schemes who have amassed a pension of £50,000 when they retire could be hit with a penalty tax charge – meaning that even modestly well paid workers who have been in role for some time should think about taking advice.

What wealth professionals are saying: Many have predicted that buy-to-let property investment will be bolstered even further by the reduction in the Lifetime Allowance – buy-to-let being widely tipped to explode post-April when, savers are freer to access and use their pension pots as they see fit. We can expect demand to further fuel rocketing house prices, leaving retirees in the difficult position of potentially helping shut the younger generations – including their own children – out of the housing market.

Aside from property, institutions are gearing up to help increasing numbers of savers who are looking for alternative long-term pension savings routes which are also tax-efficient, such as ISAs. Venture Capital Trust and Enterprise Investment Scheme investments may also prove increasingly popular – although the hoped-for rise in the Seed EIS annual limit was not forthcoming.

Entrepreneurs’ relief regime tightened

The rules on Entrepreneurs’ Relief have been tightened to close what are perceived to be avoidance loopholes and crack down on artificial disposals (which have reportedly been on the rise). Under the Budget rule changes, effective from 18 March 2015, only individuals who hold at least a 5% direct stake in a trading business, and who dispose of at least 5% of it will be eligible for the relief; holdings through a partnership or joint venture will not be included. Furthermore, where personal assets are also being disposed of, this must be simultaneous with at least 5% of the business being disposed of too.

What wealth professionals are saying: Generally, there seems to be a sense of relief that the government did not abolish Entrepreneurs’ Relief altogether, as was feared by some. Many institutions have welcomed moves to ensure that Entrepreneurs’ Relief is only claimed by those genuinely selling businesses so that this valuable relief can be preserved.

IHT, Trusts stay top of the agenda

Inheritance Tax is widely resented, particularly since if the nil rate band – which was frozen back in 2009 at £325,000 – had kept up with house price inflation the limit on the joint allowance would stand at £781,950 today (rising property prices have, of course, brought the estates of many thousands of modestly affluent individuals into the IHT net). Many had hoped that the Conservatives would confirm a rumoured increase on the IHT limit to £1m, but were disappointed.

As well as the introduction of a ten-year anniversary trust tax, the government now wants to stop tax avoidance under what is known as the “Rysaffe principle” (which allows a series of trusts to be set up on different days and for each to benefit from its own nil-rate tax band). Under the proposed rules, trusts will be amalgamated if they are settled on the same day, such as on the settlor’s death when a will comes into force.

What wealth professionals are saying: Technically, a number of trusts could be set up for quite small sums in order to get around the proposed new rules, as they will not apply to vehicles worth less than £5,000. However, this is clearly not an easy (or inexpensive option) and there a number of other strategies professionals will be able to offer as alternatives.

Deeds of variation up for review

In a move which reignited the Deeds of Variation maelstrom which surrounded Labour leader Ed Miliband (who used one on his father’s estate) earlier this year, George Osborne proposed a review of the regime on Deeds of Variation being made to wills. A report on Deeds of Variations was tabled for the autumn, with many predicting that this often highly useful estate-planning mechanism could face a swift demise as a result.

What wealth professionals are saying: The abolition of Deeds of Variation – which is a very real possibility – will remove the option for beneficiaries to amend a will after the testator’s death to skip a generation or to rectify an inequality using the current transferable nil rate band. This will make a properly considered – and up-to-date will even more of a necessity, particularly for those whose estates are large enough to attract significant Inheritance Tax liabilities.

No respite for non-doms

Paying tax on a remittance basis has been a popular option among UK resident non-doms, allowing them to settle their tax bill with the Revenue for £50,000 for 17 out of 20 years. As previously announced, the Chancellor confirmed that this amount will be hiked to £90,000 for 17 out of 20 years on 6 April 2015, and from £50,000 to £60,000 for 12 out of 14 years at the same time.

What wealth professionals are saying: Many individuals from overseas are rethinking their wealth planning strategies in light of the very steep rises to the annual remittance charges. Some will now prefer to address their tax liabilities on the actual receipt of income and gains.

This is just a small sample of the changes which have – or may – come into effect under the Budget announcements. The impact of these on your wealth is likely to be something you will want to talk over with a professional financial adviser, as are the implications of the impending General Election on things like your tax position and investment management strategy.

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