Budget 2014: preview
Chancellor George Osborne will soon be heading to the House of Commons to deliver his budget, so Moneywise has asked the experts what we can expect from his statement and how any announcements might affect you and your family.
Homeowners/first time buyers
Property expert Henry Pryor said he doesn't expect to see much from the chancellor due to previously-announced policies designed to stimulate the market already being in place.
For example, the first part of the Help to Buy scheme has already been extended until 2020 – at least in England. Pryor doubts Osborne will reign in the mortgage guarantee scheme aspect either, for example by reducing the capped property value (currently £600,000 in England) on which people can use the loan.
"With 400 days to go until the next election and with the housing market clipping along for most of it, it is hard to see a reason for the chancellor to do more than talk about encouraging more house building, while doing very little in practice to encourage it," he added.
The amount you can squirrel away in a cash Isa for the next tax year is £5,940, up from £5,760 this year. For a Jisa (Junior Isa) the limit will be £3,840 so you will be able to put away £120 more for your son or daughter than you can this year, and for a stocks and shares Isa it rises to £11,880 from £11,520.
The personal income tax allowance is already set to rise in April from £9,440 to £10,000, meaning taxpayers now won't have to pay anything on the first £10,000 of their income, though it remains to be seen if the chancellor increases this for 2015.
It is thought Osborne could also reduce the threshold for the 40p tax bracket, drawing more middle class workers into the higher band and squeezing their finances even further. Since the coalition government came to power in 2010, around 1.1 million extra people now pay the 40p tax.
Nigel Green of the deVere group said this move would be a "disincentive to aspiration" which will discourage saving. "Increasing the tax burden on more and more middle class workers by pulling them into the top band will result in a significantly higher proportion of the population with a reduced ability to save for their futures," he said.
"With many of today's working population likely to spend 25 to 30 years in retirement, creating additional barriers to saving adequately for older age – which is what this measure does - is extremely short-termist."
Pensions Expert at MGM Advantage, Andrew Tully, doesn't expect any major announcements tomorrow – and hopes it stays that way. The amount people can save in their annual allowance with tax relief is already being reduced from £50,000 to £40,000, as is the tax-free lifetime allowance which is being cut from £1.5 million to £1.25 million.
"My big hope is Mr Osborne will leave pensions and savings alone in his budget," Tully said. "I don't expect any changes to tax-free cash limits on pensions, or further changes to the annual allowance or lifetime allowance. It would be good to see these left well alone.
"The chancellor has little room for manoeuvre given the budget deficit, so is likely to grab the headlines with one big announcement, for example around personal tax allowances, rather than tweaking lots of areas."
As many as 1.9 million working families could benefit from the tax-free childcare scheme, which will be worth up to £2,000 per child from 2015/16, a rise of £800 from when the plan was first announced last year.
The scheme, which aims to help families with the burden of spiralling childcare costs, will also come into play earlier than expected, with all working parents earning less than £150,000 eligible from when it starts in Autumn 2015 – after the next General Election.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.