Budget breaks the mould of pension provision

Like the curate’s egg, the Budget was exceedingly good in parts, in that depending on your age, family circumstances or business there was the prospect of it delivering a good outcome.

The new flexibility for pensions could be a big boost for farming families. While pensions are tax efficient when money is saved into them, low annuity rates have made them a lot less attractive since the recession began. Now, people have more freedom to decide what to do.

Already the amount they can draw down has been increased, and from next year full flexibility will be introduced. There will no longer be a requirement to buy an annuity, and beyond the tax-free sum that can be drawn additional drawings will be taxed as normal income.

These are big changes with big implications. More independent advice will be available from next year and trusting people to make their own decisions should work well. The odds are that people will act more responsibly than some critics have suggested. For now, if there is no immediate need to draw on a pension, the best strategy is to wait and see what new products emerge for a very different pension market.

Also worth waiting for will be the new so-called pensioner bonds from January. These will be for people over 65 and will be operated through National Savings and Investments (NS & I). The suggestion is that a three-year bond, with a maximum investment of £10,000, will pay a market-beating 4%.

While pension changes make this the most radical budget for a long time, other aspects will have implications for family farming businesses. High on the list is the increase to £10,000 in the amount that can be earned before someone becomes liable for tax or national insurance. This will make it more attractive to make full use of unused personal allowances.

By paying someone for work done the overall tax liability can be reduced, particularly if some tax is paid at 40%, since the point where that begins has been squeezed downwards. There must be evidence of this being payment for work carried out, and that the money is paid from the business, ideally monthly. This is likely to be scrutinised by HMRC, but it should be possible to do this in a way that minimises the overall tax liability.

In another change, from April 2015 a spouse not liable for income tax above the basic rate will be able to transfer £1,050 of their allowance to their partner to reduce their tax liability.

Another change coming in autumn 2015 will be that working families may set against tax 20% of childcare costs up to £10,000 per child. This is attractive, although it does little more than replace child benefit lost last year. It also boosts the potential for community ventures in rural areas that provide professional child care, which will now be subsidised by the Government. This may be a business opportunity for those brave enough to cope with the red tape.

These are all big changes, and for once no-one could claim the budget delivered by George Osborne was either predictable or boring. The one certainty is that it was delivered with an eye to the election, and pleasing the Tory party faithful in particular.

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