Lifetime ISAs and income tax thresholds among personal finance changes
GEORGE Osborne was keen to emphasise that the Conservatives make a “Government for working people” as he announced measures raising the personal tax threshold and supporting the under 40s in their efforts to save.
One of the standout announcements the Chancellor was a lifetime ISA, allowing younger people major incentives to save for a pension or to buy a house, as he attempted to “put the next generation first.”
He admitted that under 40s “haven’t had a good deal from the pensions system” and for every £4 saved, the Government promises to match it with £1, so that fewer people will have to make the choice between saving for old age or saving for a mortgage.
Mr Osborne said that he intends to make pensions more like the 401k of the US system.
Richard Davis, tax partner at Deloitte, said: “Significant changes in respect of pensions had been expected in the run up to the Budget. Instead the Chancellor announced details of a new Lifetime ISA for people under 40 from April 2017 to assist with long term saving. People will be able to save up to £4,000 each year and receive an additional 25% bonus from the Government up to a maximum of £1,000. The funds can then be used to either buy a new home or accessed in retirement.”
Related: Budget 2016: At a glance…
The Chancellor also raised the tax-free personal allowance to £11,500. He said 31m people would pay less tax and 1.3m of the lowest paid would be taken out of tax altogether.
Mr Osborne also announced the higher rate threshold will rise from £42,385 to £45,000 from April next year.
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Mr Davis added: “The majority of tax payers will benefit from an increased personal allowance of £11,500 from 6 April 2017. This is the amount that can earned before you start to pay income tax.
“These changes should reduce the proportion of taxpayers who pay higher rate tax – latest figures show that in 2013/14 14.8% of taxpayers (some 4.5m) paid tax at the 40% or 45% rate, as compared with 10% in 2010/11. If, as the Chancellor suggests, half a million people would be removed from higher rate tax as a result of the change this would reduce the percentage to around 13% or 14%.”
Insurance premium tax is set to rise by 0.5% to 10% with proceeds diverted to flood relief.
From April 2018 employers will need to pay National Insurance contributions on pay-offs, such as termination payments above £30,000 where Income Tax is also due.
If you lose your job, payments of up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.
The Chancellor projected that 1m more jobs will be added to the economy in the coming year, with the lowest proportion of people on out-of-work benefits since 1974, and despite cuts, said that the disability budget will rise by £1bn under this Government.
The Chancellor also set out action in the red book to crack down on disguised remuneration schemes and tackle imbalances in the system. He said that actions over tax avoidance and evasion will raise £12bn over this Parliament.
He also included moves to end the use of “personal service companies” by public sector employees to minimise their tax liabilities, and tighten rules around termination payments.
In terms of consumables, the Chancellor announced a freeze on fuel duty which he said was worth £7bn a year for the sixth time in a row. He says the move means a £75 a year saving for the average driver, and called it a measure to “keep Britain on the move.”
Mr Osborne said he wanted to “support responsible drinkers” prompting him to freeze beer and cider duty, as well as that of Scotch whiskey, a major UK export. All other alcohol duties will rise by inflation as planned.
Tobacco duty continue to rise 2% above inflation, as the Government “continues to improve public health” and will introduce a floor on the price of cigarettes with increased sanctions for fraud in relation to exporting cheap cigarettes from abroad.
