Today’s Budget was thankfully quite favourable for savers and investors, with the Chancellor seemingly avoiding any unpopular moves prior to the forthcoming EU Referendum.
There were no changes to pensions (for now at least), so pension contribution tax relief and the 25% tax-free cash when taking benefits continue.
The key highlights for savers and investors include:
Higher ISA Allowance from April 2017
From 6 April 2017 the ISA allowance will rise from £15,240 to £20,000.
New Lifetime ISA for under 40s
At the same time as above we’ll also see the introduction of a Lifetime ISA for those aged between 18 and 40. This will allow contributions of up to £4,000 a year (until age 50) to which the Government will add 25%. This can be held in addition to a normal ISA, albeit the overall £20,000 annual allowance will apply.
Lifetime ISAs will not allow access before age 60 unless being used to buy a first home (of up to £450,000), although they can be withdrawn in emergency subject to losing the Government contributions and paying a 5% exit fee. From age 60 the pot can be accessed tax-free.
My guess is that this will pave the way for pensions to be replaced by a scheme along these lines at some point in future.
Reduced Capital Gains Tax rates
From 6 April this year the capital gains tax rate will fall from 18% to 10% for gains within the basic rate tax band and from 28% to 20% within the higher rate band, but the current rates of CGT will continue for gains on residential property. The first £11,100 of gains in the tax year will remain tax-free.
While this won’t affect you if you hold investments in tax wrappers such as ISAs and pensions, it’s a really beneficial announcement if you hold investments directly and are sitting on large gains that you want to extract.
Income tax allowances to rise
The standard personal allowance will rise from £10,600 to £11,000 this April and to £11,500 in April 2017. In 2017 the basic rate allowance will also increase to £33,500, meaning the higher rate threshold will rise from £43,000 to £45,000.
Corporate bond fund tax to be paid gross
A little arcane, but from April 2017 bond funds will pay interest gross making it easier to use them within the forthcoming new Savings Allowance without having to reclaim tax (as a reminder, from this April the first £1,000 of savings interest will be tax-free for basic rate taxpayers (£500 for higher rate) – I’ll provide full details in an update before the start of the new tax year.
So overall quite a positive Budget, but whether there is a fundamental change to pensions further down the line remains to be seen.