Investment and pensions advice from Chichester’s Moore Stephens South
- Credit: Archant
Mike Wakeford, tax partner at Moore Stephens South based in Chichester explains two planning opportunities brought about by the recent Budget
In a dramatic U-Turn announced in the Autumn Statement late last year, the Chancellor has increased the capital expenditure Annual Investment Allowance (AIA) limit from £25,000 per annum to £250,000 per annum for a two year period.
This ten-fold rise took effect on 1 January 2013 and is clearly aimed at encouraging businesses to incur capital expenditure with a view to kick-starting the economy.
The AIA is available on most plant and machinery, but excludes motor cars. It also extends to expenditure on long-life assets (those with an expected lifetime of more than 25 years) and integral features within buildings, which normally attract annual capital allowances at a rate of just 8%, compared to the 18% available on most plant and machinery.
It is intended that the allowance will drop back down to just £25,000 on 1 January 2015, so careful planning will be necessary to achieve the maximum amount of relief on capital expenditure over the next two years.
In some cases it may be worthwhile changing business year end dates to maximise the overall relief available. This is something that needs to be reviewed if you have or going to be incurring substantial capital expenditure early this year and do not have a 31 December year end.
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Remember that for groups of companies there is only a single AIA of £250,000 available between them all, but this may be allocated between companies in the group in the way that is most beneficial to the overall business.
A similar restriction may apply in certain circumstances to businesses that are under common ownership, but are not part of a corporate group. If you think that this may affect you, now is the time to seek advice.
Remember that there are also 100% capital allowances available on certain “environmentally friendly” expenditure on assets included with the Enhance Capital Allowance regime. This applies to asset that are designated as Energy Saving or Water Saving Technologies and there is no restriction on the amount of such expenditure on which the 100% allowance may be claimed.
It is all change again on pensions!
There are three main changes covering the application of the annual and lifetime allowances, together with a very welcome increase in the maximum income that can be drawn by pensioners who have an income drawdown arrangement.
The first two of these changes are not going to be coming into effect until 6 April 2014, leaving another year under which the existing limits will continue to apply, but the third has already come into force.
Who is affected?
• Individuals making substantial contributions to personal pension schemes
• Taxpayers with pension scheme pots currently worth more than £1.25 million or that are likely to be worth more than £1.25 by the time that they are drawn down
• Individuals with pensions already in drawdown
The lifetime allowance and annual allowance for pensions savings
From April 2014 the annual allowance limiting the amount that may be paid into pension schemes is being reduced from £50,000 to £40,000.
The rules permitting the carry forward of unused relief for three years is unaffected by this, so in calculating the amount of any unused relief being carried forward from 2011/12, 2012/13 and 2013/14 at 6 April 2014, the limit from which amounts actually paid must be deducted will remain at £50,000.
Currently there is a lifetime allowance of £1.5 million on an individual’s pensions savings before penal rates of taxation are applied to amounts drawn. This is an overall limit and all pensions owned by an individual are added together in working out whether this limit has been exceeded. For those in defined contribution schemes the value of pension savings is the market value of the assets held in pension funds at the date of retirement. For defined benefit (‘final salary’) schemes the calculation is more complex. From 2014/15 the limit will be reduced from £1.5 million to £1.25 million, but there will be transitional arrangements to protect the position of individuals who are already at or near the £1.25 million limit.
The amount of pension that may be taken from an income drawdown scheme increased on 26 March 2013. It had been limited to 100% of an equivalent annuity (as determined by the Government Actuary’s department), but has now increased to 120%.
• Contact Mike Wakeford on 01243 520618