16th March 2016 at 4:08pm
News on tax and savings from the March 2016 Budget.
- Pensions – it’s business as usual
- Increases to the tax-free personal allowance and higher rate threshold
- ISA savings limit raised to £20,000 and new Lifetime ISA announced
- Capital Gains Tax reduced.
The Chancellor made a number of important announcements affecting tax and savings – here are the highlights.
No change to pensions tax relief
As expected, the Chancellor confirmed he was making no changes to pensions tax relief.
Personal allowance increases
Everyone has a personal allowance and the good news is that this is going up by £400 to £11,000 from 6 April 2016, and rises again to £11,500 from April 2017.
This means there will be one personal income tax allowance for everyone, regardless of your date of birth, a change which should make things simpler.
A rise in the higher income tax threshold
If you currently pay higher rate tax (40%) on income above £42,385 then, from 6 April 2016, this threshold will rise to £43,000. From next year this increases to £45,000.
These increases will see the take-home pay of higher-rate taxpayers increase by £500 each year, while basic rate taxpayers will see theirs increase by £100 each year from April 2017.
ISA limit set to rocket
There’s no change to the ISA limit this year but from April 2017 the annual limit will rise from £15,240 to £20,000.
New Lifetime ISA for the under-40s
A Lifetime ISA for the under-40s will be available from April 2017 and is aimed at encouraging younger people to save more.
You can open one at any age between 18 and 40, and save up to £4,000 each year and any savings you put into it before you are 50 will get a Government bonus of 25% – that’s up to £1,000 a year.
At any time you can use some or all of it to buy your first home (up to £450,000). Alternatively, you can keep it until you’re over 60, take it tax free and spend it as you wish.
Your money is not locked away for the long term; you can take your savings at any time. If you did this you would lose your Government bonus, plus any interest or growth on this, and pay a charge of 5%.
Help to Buy ISAs can be rolled up into this new Lifetime ISA.
You can read more here and we’ll cover this in more detail in a future article.
Capital Gains Tax reduced
In just three weeks’ time, from 6 April, Capital Gains Tax is being reduced from 28% to 20% for higher rate taxpayers and from 18% to 10% basic rate taxpayers.
This could mean you’ll pay less tax if you sell shares, for example.
Residential stamp duty extended to commercial properties
From midnight tonight (16 March), the stamp duty levied on residential properties also applies to commercial properties, except in Scotland.
This means commercial properties costing up to £150,000 are exempt, with a tiered system of 2% on properties up to £250,000 and a 5% top rate on those over £250,000.
There are transitional rules for properties where contracts have been exchanged but not yet completed.
Help for the low paid to save more
A new ‘Help to Save’ scheme aims to give low-paid workers a top-up if they build their savings. On savings of £50 a month, the Government will top it up by £25.This could be worth up to £1,200 over four years.
Also announced today, Class 2 National Insurance contributions for the self-employed are being abolished from April 2018.
To get the latest Budget 2016 news and analysis, keep an eye on our MoneyPlus announcements.
The information in this blog or any response to comments should not be regarded as financial advice. This is based on our understanding of today’s Budget. Laws and tax rules may change in the future.