Budget News


Here's the key points from Wednesday's budget including changes to the Personal Allowance and the announcement of a new 'Lifetime ISA' for those under 40.


What does the Budget mean for the tax I pay?

Personal Allowance

The amount of income people can earn before they start paying income tax (known as the personal allowance)  is rising.

We already knew that it was going to go up to £11,000 for basic rate taxpayers in April. It will rise to £11,500 in April 2017.

Accountants say this 2017 change will reduce tax by £180 per year, or £3.46 per week, for basic rate taxpayers compared with the current £10,600 personal allowance.

The higher rate threshold will increase to £43,000 in April, and now Mr Osborne has said it will go up to £45,000 in April next year.

The Conservatives have promised to raise the personal allowance to £12,500 by 2020-21. They have also pledged that the threshold at which people start paying the higher rate of tax will go up to £50,000 by 2020-21.

 

New Sugar Levy 

A sugar levy was announced by the chancellor that may change the sugar content of fizzy drinks.

However, the chancellor admitted that it could add to the cost to consumers of fizzy drinks.  This new levy will begin in two years.

 

What about taxes on 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 will rise in line with inflation.  Excise duties on tobacco will rise by 2% above inflation.

Capital Gains Tax-The rate of CGT is falling to 20% for a higher rate tax payer and 10% below that however this does not apply to residential property, but will apply to commercial.

 

What about the cost of driving?

Fuel duty will be frozen again.  However, a tax increase which will hit motorists and others is the rise in Insurance Premium Tax.

This was last raised from 6% of an insurance premium to 9.5% in November - 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, to 10%.

This will not only add to the cost of motor insurance but also other forms of insurance such as healthcare insurance costs, home insurance, and pet insurance. Life insurance is exempt.

The chancellor said that money raised by the half a percentage point increase will all be spent on flood defences (assuming you believe what the Chancellor says, of course).

Mr Osborne also announced that the cost of crossing the Severn Bridge will be halved by 2018. It currently costs £6.60 to drive a car over the bridge.

 

New Lifetime ISA 

A major announcement in the budget was the introduction of introduction of what the chancellor is calling a "Lifetime ISA" for those aged now under 39.

n ISA, or Individual Savings Account, is a tax-free wrapper around savings. In other words, the money is not taxed when it is taken out of the account. ISAs already exist in various forms.

Under the new plan, those under 40 in April 2017 will be able to save up to £4,000 each year into the Lifetime ISA, and receive a 25% contribution from the government each year. So for every £4 you save, the government will add an extra £1. This top-up will last until savers are 50. The ISA can be put into any mixture of investment.

There will be conditions on how this is spent. Lifetime ISA 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. There will be quite large penalties if savers dip in to these funds at other times.

It is essentially a choice for the under 40s of whether to save for a house or a pension (it does not, of course, make property any more affordable) and seems to have been introduced instead of wholesale changes to the pension system.

It also means that, for many young people, there will be a calculation to make on whether they want to save in this kind of ISA, with a government top-up, or stick with a traditional pension, with an employer top-up, or both.

The annual ISA limit for regular ISAs for all age groups is to rise from £15,000 to £20,000.

Some have already suggested that the new Lifetime ISA will add to demand of property in the longer term, as people save, with government help, for a loan.

In the more immediate future, investors with more than 15 properties will not escape the 3% stamp duty surcharge being faced by other landlords.

 

 

 

 


  • Date posted:
    18/03/2016
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