Last week’s budget contained some important news for savers, particularly with the introduction of an exciting new ISA coming into place next year, which could see many more people encouraged to start saving, or save more, for their retirement.
There are also some changes in the Budget which are likely have an effect on our monthly incomings and outgoings. Changes to the Personal Allowance, for example, and a hiked Insurance Premium Tax.
Read our summary of the main changes from the new Budget that could affect your personal finances…
Good news for pensions
Despite worries George Osborne might target pensions, he chose not to announce changes to pension tax relief, tax-free cash or the contribution allowances.
You can continue to receive tax relief on any contributions you make, at the highest rate of income tax that you pay. The annual allowance is remaining at £40,000 for most people.
New ‘Lifetime ISA’
The Chancellor announced a new Lifetime Saving ISA will launch in April next year. It is intended to help those between 18 – 40 to save for their retirement or a home, with the government adding £1 to every £4 set a side.
A person can save up to £4,000 a year up until their 50th birthday and receive a government contribution of 25% - a bonus of up to £1,000 a year.
You can use some or all of the money to buy your first home (up to the value of £450,000), or keep it until you’re 60 and take out all the savings tax-free for your retirement.
You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this) – and you will also have to pay a 5% charge.
David Slater, CEO of Retirement Line said:
“The budget has some good news for investors and savers. The new Lifetime ISA appears to be more tax-efficient than normal pension plans, this will almost certainly see savers choosing to transfer their pension contributions of up to £4,000 a year into the new scheme.”
The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017
Increased Personal Allowance
The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.
The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
Fuel duty frozen
Fuel duty will be frozen again in 2016-17, saving the typical motorist £75 a year.
Capital gains tax to fall
From April 2016, the higher rate of capital gains tax will be 20% and the lower rate 10% (currently 28% and 18%). Capital gains tax applies when you sell investments at a profit and exceed your capital gains allowance, currently £11,100. This reduction will not apply to gains made on residential property (e.g. second homes and buy-to-let).
Insurance Premium Tax
In November this was raised from 6% of an insurance premium to 9.5% - a move that the Association of British Insurers (ABI) says added nearly £13 to the average comprehensive motor insurance policy*.
Now Mr Osborne has announced that this will rise again, this time to 10%. It won’t just be the cost of motor insurance that will increase, but also other forms of insurance such as healthcare insurance costs, home insurance, and pet insurance. Life insurance is exempt.
*BBC News 16-03-16
Alcohol and tobacco
Beer and cider duty is to be frozen again. Duty on whisky and other spirits has also been frozen. Duties on wine and other alcohol, however, will rise in line with inflation. Excise duties on tobacco will rise by 2% above inflation.