Income tax rates are to remain the same to 5 April 2016, with the exception of the savings rate. This will be cut to 0% from 6 April 2015. However, the savings rate only applies if individual's net non-savings taxable income does not exceed the savings rate limit.
The income tax rates and bands have been announced as:
Savings rate: 10%, 0% from 2015/16
0 - £5,000
Basic rate: 20%
0 - £32,010
0 - £31,865
0 - £31,785
Higher rate: 40%
£32,011 - £150,000
£31,786 - £150,000
Additional rate: 45%
When the personal allowance is taken into account an individual will start to pay tax at 40% when their total income exceeds £41,865 in 2014/15 and £42,285 in 2015/16. This is compared to a 40% threshold of £41,450 in 2013/14. This threshold (and the 45% threshold) can be increased if the taxpayer pays personal pension contributions or makes gift aid donations.
The following changes will be introduced from 27 March 2014:
A person who wishes to take their pension as ''draw-down'' instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:
individuals will have complete freedom in how they access their pension savings;
buying an annuity will not be a requirement on retirement;
the 55% tax charge on withdrawing too much from a pension fund will be removed; and
everyone will be offered free and impartial advice on how to best use their pension savings.