Budget Day, like red phone boxes, Buckingham Palace and afternoon teas, feels like a distinctly British tradition. The moment when the Chancellor stands outside number 11 Downing Street presenting the red Budget briefcase to the assembled media has been part of UK politics for 150 years, with almost every chancellor since William Gladstone in 1860 observing the ritual. But while it feels like part of the political furniture, it also has the potential to disappoint.
This year, however, the red briefcase contained some genuinely positive changes that you may have missed as you raised a glass to the lowering of duty on beer and cider. Now that the dust has settled, here’s three points to whet your appetite for the financial year ahead:
Things are on the up in the UK
It’s easy to focus on the ‘what it means for me’ factor of the Budget, but sometimes it’s good to stand back and look at the bigger picture. The good news is that the bigger picture for the UK has improved significantly in the last few years. There’s record employment, inflation is projected to fall to 0.2% in 2015, and living standards are improving, with households on average £900 better off than they were five years ago. All of that means more opportunity, as well as more money in your pocket.
The budget for savers
If the 2014 budget was all about changes to the way pensions operate (which we’ll come onto in a minute) then the 2015 budget was all about savers.
Firstly, a new personal savings allowance of £1,000 will be introduced in April next year. What does this mean? Well, previously, everyone paid income tax on any savings outside of their ISAs. This change means that you can earn £1,000 in interest in your regular savings account without paying any tax at all. For example, if you are saving into one of the highest paying savings accounts (currently three per cent), then you can save £33,000 without having to pay any tax on your interest earnings. That’s a positive shift that will benefit most people in the UK. It’s worth noting that higher-rate tax payers will only get a £500 allowance, while top-rate tax payers won’t get any of the benefit.
Now, alongside that new allowance is an increase in flexibility to the way you can use your ISA. Previously, once you’d deposited the full ISA allowance for a year, you couldn’t add any more money during that same tax year, even if you’d made a withdrawal. That is set to change from the autumn, meaning that you’ll be able to access your ISA money if you need it, and you won’t be penalised if you then want to save more later on in the tax year. The only restriction is that all of this needs to happen in the same tax year – you can’t carry over any unused allowance.
You’ve got more freedom with your pension than ever
Of course, those benefits for savers come at a cost, and one of the ways that the Government will recoup that cost is through a cut in the lifetime allowance for pension savings that can be accumulated free of tax, from £1.25m to £1m.
While that may seem like a negative, it will only affect a small percentage of individuals in the UK, and the overall picture for pensions is overwhelmingly positive.
We’ve been talking about this topic a lot lately, dedicating a whole month to pensions in March. We won’t go into too much detail here as a result, but the highlights are that you’ll be able to withdraw as much of your pension as you want, income drawdown will be available to more people, and your pension is not necessarily subject to the ‘death tax’. All in all, you have more choice than ever over what to do with your money.
Of course, more choice isn’t necessarily a good thing if all of the choices are difficult to understand, but with some thorough research (or advice from us!) you now have the freedom to make your pension work for you and your family in the most suitable and tax-efficient way possible.
It’s time to start saving
Paying tax on savings always seemed a little unjust to us. You’ve already paid income tax on your money, why should you have to pay more tax just because you choose to keep it? The changes announced in the Budget put an end to tax on savings for most people in the UK, which is a huge step in the right direction. Add that to the fact that pensions are more attractive than ever to invest into, and it seems like now is the time to start saving for the future.
The value of an investment and the income from it could go down as well as up.
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
GreenSky Wealth Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 629624. Registered Office as above. Registered in England and Wales, Company No. 07103441.