With the election just around the corner, last week’s was never going to be a punishing Budget and the Chancellor delivered a range of carefully measured giveaways as usual.
Twelve months ago saw the most revolutionary Budget for pensions that I had ever seen and this time around it was savers who benefited. George Osborne announced that basic rate tax payers will now have a £1000 tax-free savings income band on top of their normal tax-free personal allowance. This means, for example, that cautious savers could have £20,000 in the Santander 123 account earning £600 and £10,000 in the National Savings 3 year pensioner bond, earning £400, all without being liable to pay tax.
Higher rate taxpayers will however only receive £500 of interest before paying any tax. There will still be some paperwork required to claim back any tax paid on the pensioner bond and to receive the interest tax-free on any other savings accounts.
ISA savers will now benefit from the flexibility of being able to make withdrawals from an ISA and pay money back in during the same tax year. Previously if an ISA was fully funded and money was taken out, it could not be put back in until the next tax year. This welcome change is on top of the recent announcement that on death, an ISA can pass to a spouse without losing its tax-free status.
Probably the most dramatic ISA change is the announcement of a new first time buyer ISA. Savers can put £1,000 initially and up to £200 per month into a first time buyer ISA and the Government will add 25 per cent to the amount saved when it is use to buy a property. The maximum that can be saved in this way is £12,000 and the Government will add £3,000. A couple could each benefit from the £3,000 incentive, resulting in an extra £6,000 towards a deposit.
The scheme will apply to houses valued up to £250,000 outside of London.
One disappointing aspect of the Budget was the reduction of the lifetime pension allowance to £1m. Anyone approaching retirement with funds close to or above this amount will need to take action to protect their pension from a potential 55 per cent tax charge.
David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: firstname.lastname@example.org