Understanding the Budget
20 Mar 2015 | COMMENTS: 0 | Author: Liberty Howard | News
On Wednesday, the Chancellor announced that the UK had the fastest growing economy in the G7 for 2014, employment has reached its highest ever level, and inflation is at a record low. Although it might not always feel like it, the recession is on the way out, and this was reflected in the 2015 Budget.
Osborne stated at the beginning of the week that this was a Budget of “no giveaways, no gimmicks” and whilst that was largely true, as the Election looms, the Chancellor needed to do everything in his power to keep the electorate sweet. The result is a few policies that could boost your finances when they come into effect. As always though, it’s not all good news and there are some policies that might cost you money or limit the amount you can save, too. We’ve put together a round-up of the announcements that will affect your wallet the most.
The threshold at which you start paying income tax is set to rise from £10,000 to £10,600 next month, with further rises to £10,800 in 2016 and finally £11,000 in 2017, planned. This represents a tax-saving of £80 a year to basic-rate tax payers, and £172 to those taxed at the higher rate. The plans mean that in two years’ time, 3.7million people will be taken out of income-tax altogether.
The 40% higher income tax rate will also be raised by £520 to £42,385 as of April, and is also set to rise again – to £43,000 by 2017/18.
For the first time, the Government is introducing a Personal Savings Allowance – tax relief on the first £1,000 of interest earned by basic-rate tax payers, and first £500 for higher rate. The Chancellor expects 95% of savers will pay no tax on their interest under this new system, stating that “people have already paid tax on their money when they earn it. They shouldn’t have to pay tax a second time when they save it.”
ISAs are also being reformed – with the yearly tax-free allowance rising to £15,240, and the “Flexible ISA” being introduced. This lets savers use their ISA more like a bank account, depositing and withdrawing up to the yearly allowance – per tax year – without losing the tax benefits. Previously, if you withdrew any savings from your ISA, the initial deposit value was still deducted from your allowance until the following financial year. For example, those putting £4,000 into their ISA at the beginning of the 2014/2015 tax year and then withdrawing £2000 a few months later would only be eligible to deposit a further £11,000 if they wanted the account to keep its tax-free status. Under the new rules they would have been able to deposit £13,000 and still pay no tax on the interest.
Continuing to promote the importance of saving, a Help-To-Buy ISA was introduced. These ISAs will be available through banks and building societies from Autumn. The offer is set to run for 4 years, but once opened, there’s no limit on how long you can save into it, as long as you don’t exceed £200 per month. Upon purchase of your first home, the Government will contribute a 25% bonus up to £3,000 – meaning a £12,000 saving will be worth £15,000 under the scheme. Accounts can be opened per person, not per home, so 2 people saving together can each receive the bonus.
The offer is only available to first-time buyers, purchasing a home up to the value of £250,000 or £450,000 in London, and will not be valid for buy-to-let properties.
After last year’s massive reforms, pensions took a bit of a backseat this year – with just a few tweaks to the new rules coming into effect on April 6th. Controversially, the Lifetime Pension Allowance has been slashed once again – going from £1.25million to £1million. The Chancellor says this change will effect less than 4% of pensioners, and will save the Government £600million a year in tax relief. But critics have called it a “slap in the face” for those who’ve worked hard, and a “cap on aspiration”.
Also announced in the Budget, were plans to lift the current restrictions on buying and selling annuities. This will come into effect in 2016, and will allow around 5 million pensioners who are currently tied into an annuity to effectively “sell” the income they receive, and take a lump sum – without the 55% charge that currently applies.
The annual tax return will be abolished, and replaced with new digital tax accounts – cutting down the average time spent on tax returns from 40 minutes to just 10 minutes. The switch will happen gradually between now and 2020, with benefits such as being able to pay tax at any point during the year, and the option to pay in instalments cited. George Osborne called the policy “a revolutionary simplification of tax collection”. The Government are also setting out to abolish Class 2 National Insurance contributions for the self-employed during the next Parliament.
Alcohol and Fuel Duty
The Budget froze the duty on wines, and reduced the tax on a pint of beer by a penny from March 23rd, with tax on spirits and lower-strength cider being cut by 2%. The planned fuel duty increase – of 0.54p per litre, designed to increase the price of petrol and diesel by RPI inflation – has been cancelled, and will not go ahead on September 1st.