How will the budget affect investors, like you and I? Today, George Osborne announced his latest budget, and there are some welcome changes that will affect us those who make investments. The new budget will affect those in work – who pay tax, as well as those who are already, or are about to, draw upon their pension savings. It will also affect those of us who are in the accrual phase, as our NISA and SIPP allowances are due to change too. Here’s a quick overview of the main areas in which we, as investors, will be affected:
1. The personal allowance
The amount one is allowed to earn before income tax is deducted, is set to rise. It’s currently £10,000 – this will rise to £10,800 next year and £11,000 the year after. If you’re lucky enough to be on a salary that puts you in the higher tax bracket (40%), the income at which you’ll start paying 40% tax will rise from £41,866 this year, to £43,300 in 2017-8. These changes obviously favour those on lower incomes much more than those on average or larger sized salaries. A few years ago, the personal allowance was a measly £7,475 – but the threshold for the 40% tax bracket was £45,000. Osborne says he wants to eventually raise tax free allowance to £12,500, which I think would be absolutely fantastic. For higher earners, he wants to raised the 40% threshold to £50,000. This would really help a lot of people, in my opinion. The marriage tax allowance will also rise to £1,100.
2. The nil-rate band for savings is here!
The first £1,000, or £500 for higher-rate taxpayers will have no tax on the interest. This is cool, I hate seeing the tax come off my bank account!
The NISA limit will now go up to £15,230 from the current £15,000. BONUS!
There will be a new ‘Help to Buy ISA’, and every £200 saved into it will give a Government top up of £50. This is fantastic and I wish it had’ve been available many years ago. It’s a wonderful way to encourage young savers to get funding their house deposits.
There will be other important changes to NISAs to make them more flexible. The most important of these will be the ability to withdraw money and then put it back in without losing your tax protection, or using up your tax-free deposit allowance. This is a long-overdue change that will make things a lot simpler, it has always been a weird, annoying, and confusing rule that even if you took the money out, you couldn’t put it back in without already having used up that amount from your overall tax-free allowance.
3. The pensions lifetime allowance
This is currently £1.25 million, and will be cut to £1m. Osborne says this is because it is currently unsustainable at such a high rate. This cut affect less than 4pc of people, apparently. I can understand why they are doing this, and thankfully it doesn’t bother me, as I think £1m of tax-deferred money is a pretty cool amount – especially on top of what you could be putting away using NISA allowances and SEIS schemes. As we expected, the law is to be changed to allow pensioners to get access to their annuities. This follows on from the scrapping of the requirement to buy an annuity in the first place. The 55% tax charge will also be scrapped, and tax will be applied at the person’s marginal rate, as it already the case. This is a welcome simplification and freeing of the current rules.
What do YOU think about these changes? Will they affect you greatly? What would YOU have done differently? Let me know, leave a comment below!
Photo credit: freedigitalphotos.net/Serge Bertasius