So, what did the Chancellor have up his sleeve? And how does it affect you and your money? Here is Spectator Money’s guide to the major changes.
Income tax
George Osborne stayed true to a Conservative pre-election pledge to increase the threshold for the higher rate of income tax. While reiterating that the goal is to raise the higher rate towards £50,000 by the end of the parliament, he announced an increase in the 40p threshold to £45,000 from next April (£42,385 from this April). This will lift half a million people out of the higher rate and save them £400 a year. And he repeated the aim of boosting the tax-free personal allowance to £12,500 while revealing a rise to £11,500 by next April, calling the combination of these measures ‘social justice delivered by conservative means’.
Savings
The Chancellor reserved one of the biggest surprises of his Budget for savers by announcing the introduction of a Lifetime ISA. This new product will work on a ‘top up’ basis, meaning that for every £4 saved, the government will add £1. As a result, if savers put in £4,000, the government will add an extra £1,000. The plan will be reserved for people under 40. Those who already hold a help-to-buy ISA can roll their savings into the new format.
The plan was originally proposed by the libertarian think-tank Centre for Policy Studies. Speaking to the House of Commons, Osborne said that the Lifetime ISA was the ‘equivalent of tax-free savings into a pension’.
Under the terms of the plan, account holders will be able to access all the funds, including the government top-up, tax-free to buy a first home of up to £450,000, if they have a terminal ill-health condition, or from the age of 60. It is essentially a choice for the under 40s of whether to save for a house or a pension, and is widely regarded to have been introduced instead of radical changes to the pension system.
David Brooks, technical director at Broadstone, a financial advice firm, said: ‘The Lifetime ISA, with a combination of pension and mortgage saving, sounds like a very interesting idea but is surely the thin end of the wedge. With the age of 40 set rather arbitrarily it isn’t hard to see – if successful and with high take up – that it couldn’t be opened up to all savers in due course. It doesn’t seem to tick the box of saving much in tax relief but as a move to shake up the pensions industry for the future, George has certainly laid his cards on the table. The future is Pension ISA.’
Richard Parkin, head of pensions at Fidelity International, said the new Lifetime ISA will help younger savers and the change should not be viewed as the ‘death of pensions’.
From April the annual ISA allowance will be increased from £15,000 to £20,000.
And, as widely trailed this week, there will be a new state-backed savings scheme for low-paid workers, worth up to £1,200 over four years.
Fuel duty
Predictably, motoring organisations have welcomed the decision to freeze fuel duty for the sixth consecutive year (an annual saving for the average driver of £75). AA president Edmund King said: ‘We are delighted that the Chancellor has resisted the temptation to increase fuel duty, which will bring relief at the pumps for millions of motorists.’
Insurance Premium Tax
Amid fears that IPT would be hiked to 12.5 per cent, the Chancellor announced a 0.5 per cent increase to 10 per cent. This will generate £700 million and be spent on flood defences.
Capital Gains Tax
In three weeks’ time, Capital Gains Tax will be cut from 28 per cent to 20 per cent, and from 18 per cent to 10 per cent for basic-rate taxpayers. But there will be no change for properties. Richard Lambert, chief executive of the National Landlords Association, said: ‘The Chancellor said that this government would tax the things it wants to reduce not the things it wants to encourage. On that basis, it’s clear he does not regard ordinary people putting their own money into providing homes as worthwhile.’
Financial advice
The government will consult over the introduction of a ‘pensions advice allowance’ to allow people to withdraw savings to pay for regulated advice. The allowance will allow people over the age of 55 to withdraw up to £500 tax-free from defined contribution pensions to redeem against the cost of financial advice.
Join The Spectator at the Budget Briefing with Andrew Neil, Fraser Nelson and James Forsyth.
16 March 2016 | The British Museum, Great Russell Street, London WC1B 3DG
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