New tax advantages for inheriting spouses
Other news in the autumn statement: surviving spouses will now inherit their partner’s ISA benefits and there will be reduced tax on pensions.
Spouses will inherit their partner’s individual saving account (ISA) benefits after death
Under current rules, if an ISA saver dies and leaves their ISA fund to their spouse (or civil partner), the income and capital gains tax benefits of the ISA were, up to now, lost in the hands of the survivor. From 3 December 2014, the spouse of an ISA saver will inherit the ISA tax advantages. This will benefit those who have significant ISA savings and stand to inherit ISA funds from their spouse, as there will now be no future income and capital gains tax on the inherited funds.
The ISA limit for 2015/16 will rise from £15,000 to £15,240, whilst the Junior ISA and Child Trust Fund limits will be increased to £4,080 from £4,000
Pension savings
From 4 December, people who die before age 75 with a joint life or guaranteed term annuity can pass on the benefit tax free. Despite previously announced changes to liberate pension funds, an anomaly remained which meant that crystallised funds would be subject to a 55% tax charge if the pension saver died before age 75 whereas uncrystallised funds could be transferred tax free.
This is a welcome change and should encourage pension savings. The simplification means that beneficiaries of individuals with a joint life or guaranteed term annuity will be able to receive future payments from the policies tax free, where the individual dies aged under 75, whether or not the fund has been crystallised. This will remove the predicament that individuals currently face of whether or not to crystallise their pension funds.
Changes to charges on non-domiciled persons
The remittance basis charge for non-domiciles resident in the UK for 12 years or more will increase from £50,000 to £60,000 and a new charge of £90,000 will be introduced for individuals’ resident for 17 or more years.
This announcement targets those who have come to live in the UK for the long term but who retain a large share of their wealth offshore. Many will need to decide whether to forfeit the higher charge and subject their worldwide income to tax, which will in turn increase the level of data on these individuals available to HMRC. Others may see this as an opportunity to spend a few years out of the UK before returning to restart their residence clock.
Legal and tax rules around all the above areas is complex and requires specialist advice. Please contact us if you would like to discuss any of these areas and how they might apply to you.