Today George Osborne delivered his eighth Budget since becoming Chancellor in 2010.
On the day when it was reported that the level of unemployment in the UK had encouragingly fallen once again, the Chancellor was quick to emphasise that the UK faced challenging global economic ‘headwinds’ and a dangerous ‘cocktail of risks’. This caution tempered the tone of the Budget speech.
A number of key points will be vying to take the headlines – notably the introduction of a new ‘sugar tax’, devolution of greater political powers to the regions and slower predicted rates of economic growth. But which of Mr Osborne’s measures are most likely to have the biggest impact? Below we highlight key developments that could impact your personal financial planning.
1. New Lifetime ISA
A new Lifetime ISA (LISA) will be launched from April 2017. This new savings product will be available to adults aged under 40. It’s designed to support plans to save for retirement or a first home.
You’ll be able to save up to £4,000 each year in a LISA. Choose to do this and you’ll receive a 25% bonus from the government for every pound saved. These contributions can continue up to age 50 and can be used to buy a first house at any time from 12 months after opening the account, or withdrawn for retirement from age 60. The government has provided a helpful one-page document to explain how the LISA will work.
The LISA will replace the Help to Buy ISA in 2019. The government estimate that, since the Help to Buy ISA was launched, more than 350,000 first time buyers have opened a help to buy scheme. This suggests that there is an appetite for this type of initiative.
Aviva comment: choice and flexibility for savers is a good thing, and people under 40 who are saving for a home may welcome this new development. A workplace pension will remain an attractive choice when saving for retirement, as it continues to carry tax benefits and enjoys the boost of an employer contribution too. Those who feel they have optimised their workplace pension will have the additional option of a LISA to complement their longer-term savings. The traditional ISA also remains in place. You can find out more about this on Aviva’s guide to ISAs explained page.
2. ISA allowance up
ISAs continue to provide a tax-efficient saving option for many. From April 2017, the amount we can save into an ISA will increase from £15,240 to £20,000 each year. This figure includes the £4,000 LISA allowance.
Aviva comment: extending the ISA limit is good news for savers. This increase, from April 2017, will complement the new dividend allowance and new tax treatment of savings interest which were previously announced. We’ve explained these in our Quick guide to the new tax rules. These developments extend the amount that can be saved without incurring a tax charge.
3. No change to pension system
In 2015 the government consulted on a possible overhaul of the pension tax system. Recently it has been suggested that the government had decided not to proceed with these changes yet. This decision to stick with the current system of tax relief was confirmed today.
Aviva comment: after a period of significant change to the pension system, some stability should help to build confidence and understanding.
4. Income tax threshold changes
Individuals’ tax-free personal allowance will rise from the present £10,600 to £11,500 from April 2017. The higher rate tax band will also increase from £42,385 to £45,000 from the same date. The additional rate tax band remains at £150,000.
Aviva comment: an increase in these income tax thresholds will result in fewer people being brought into the higher rates of income tax as their incomes rise.
5. Other known changes:
The next tax year begins on 6 April 2016 and, despite today’s Budget, a raft of changes was already confirmed to come into effect from this date. These include alterations to the pension annual allowance, lifetime allowance and a new state pension. You can read Aviva’s previous comments on these on our Quick guide to new tax rules page.