It’s quite astounding how much one person standing up and talking for 62 minutes can affect your bank balance, and potentially your bank balance over a lifetime. And George Osborne’s March 2016 budget, his third budget in the past year, will definitely impact your finances. Whether it’s positive or negative will be down to your individual circumstances, but for most individuals there will be choices to make.
The headlines were a mixed bag. Health campaigners rejoiced at the news of a new sugar tax, with soft drinks companies set to pay a levy on all drinks containing added sugar from April 2018. Even better, that additional revenue will be funnelled into primary schools with funding for sports and additional activities. On the flip side, growth is forecast to be 2% in 2016, down from 2.4% in the autumn statement, and that scaling back continues in 2017 and 2018.
Let’s take a look at some of the major ways the budget will impact the money in your pocket:
A new way of saving…if you’re between 18 and 40
ISAs, or Individual Savings Accounts, have been around for a long time now. We’ve had Cash ISAs, Stocks and Shares ISAs, and just last year we saw a ‘Help to buy’ ISA introduced. And for adults currently aged under 39, there is now a ‘Lifetime ISA’.
So what is it? Well, people under 40 in April 2017 will be able to save up to £4,000 every year into this new Lifetime ISA, receiving a 25% boost from the government on the money that goes in. For every £40 that you squirrel away, the government will add £10. As with all ISAs, the funds can be withdrawn without having to pay any additional tax.
There are, of course, some conditions. The funds have to either be used to purchase a first home, withdrawn after you hit the age of 60, or can be accessed earlier if the saver has a terminal illness. Also note that the Government only adds a contribution up until your 50th birthday.
If this sounds a little bit like a pension, then you’d be a little bit right. It certainly appears to be one of the pension changes that the Chancellor has been looking to make, but easing the change in under ISA rules initially to run alongside the current pension system. For young savers with an eye on a potential property purchase, this may be a preferred option to the more traditional route of pension saving. It will also be interesting to see whether young people who have been auto-enrolled in a pension scheme due to recent legislation reach the point where they would be better off opting out of the pension scheme to save into a Lifetime ISA. There’s still a bit of unpicking to do with this idea, as you can tell…
You can earn a little more tax free
Each year, the amount that people can earn before starting to pay income tax increases. In April 2016, that figure increases to £11,000, rising to £11,500 in April 2017. Alongside that, the basic tax rate allowance will also increase in 2017/2018, meaning people can earn up to £45,000 before having to pay a higher rate of tax.
Your spare room just got more attractive, but the buy-to-let flat idea didn’t
We’ve talked about renting out a room as a way of increasing income before, and from 6 April 2016 the level of Rent a Room relief, which provides tax-free income that can be received from renting out a room or rooms in an individual’s only or main residence, will increase from £4,250 to £7,500 per year. What’s also good to note if you happen to own a Norfolk property that attracts tourists or visitors, is that this new rate applies to guest houses and B&Bs, provided the ‘main residence’ criteria is still met.
However, if a buy-to-let property is on your radar, then this Budget just continues the slide in attractiveness that buying additional property has experienced in the past few years. This time, it’s Stamp Duty that takes the hit, as the Government tries to redress the balance between those who are struggling to buy their first property and those who are able to invest in additional properties. So, if you’re a buy-to-let investor, you’ll now be paying 3% more on Stamp Duty than someone buying the same house as their only house. Eyeing up a house worth between £125,000 and £250,000? From 6th April 2016, where the regular Stamp Duty is 2%, buy-to-let investors will pay 5%.
Before the Budget, it seemed that changes to pension tax relief were going to feature heavily, but after a lot of resistance they didn’t materialize so, for some, what wasn’t in the Budget might have had more impact than what actually ended up being announced.
If you’re an investor, a rising ISA allowance, tax relief on pension contributions staying in place, and a fall in capital gains tax will certainly have put a smile on your face. That said, George Osborne has now broken two of his three fiscal rules. Cap welfare spending? Oops. Bring down debt? Ummm…Produce a surplus by 2020? Still possible, but overall it’s looking more difficult, and the slowdown in growth will continue to have an effect on the UK’s, and therefore our, finances in the coming years.
The budget covers a lot more than what we’ve mentioned above, of course, and there are more ifs and buts to consider within each new development. If you need detailed advice on anything that might affect you, just give us a call. That’s what we’re here for.
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.
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