Budget 2014: A budget for savers and investors
Years of campaigning have finally paid off – as this year's Budget winners are most certainly the UK's savers and investors.
Here's our round up of the good news.
The Nicer Isa: Savers and investors will be able to save and invest a total of £15,000 in any combination of cash and equities from 1 July 2014. Holdings can currently be switched from cash to equities, but for the first time savers will be able to move money in the other direction without cashing in their Isa and losing the tax benefits. You'll also be able to put a peer-to-peer loan in your Isa for the first time too, though a date for this has not yet been set.
Increased allowances for JISAs and CTFs: The maximum you can invest tax-free for children will be increased from £3,720 to £4,000 from 1 July 2014.
New pensioner bonds: NS&I will launch a new range of pensioner bonds in January 2015 paying best buy-bashing rates of interest. The one-year deal will pay 2.8%, while the three-year deal will pay 4%.
10p savings rate to be scrapped: Some very low earners qualify for a reduced savings rate of 10% on savings up to £2,880 however that is to be brought down to zero for the first £5,000 of savings.
Annuities will no longer be compulsory: from April 2015. But if you do want to use your pension fund to buy one you'll get the benefit of free, independent advice
New rules for smaller pensions: From 27 March 2014, you'll be able to cash-in small pension pots worth up to £10,000 up from a pitiful £2,000. The number of small pots that can be taken as lump sums will also be increased from two to three.
Drawdown changes: From April 2015, pension savings will become more accessible with the capped drawdown limits increasing to allow savers to access 150% of what they could have received with an equivalent annuity. This is up from 120%. These rules are in place to ensure pensioners do not outlive their funds.
Relaxation of flexible drawdown rules: Wealthier retirees are not bound by the same rules when it comes to accessing their pension fund and do not have to stick to the capped drawdown limits. Currently to qualify you need to demonstrate a secure pension income of £20,000 a year. This has now been reduced to £12,000.
Death taxes on pensions to be reduced: Once you have started taking an income from a drawdown plan any remaining funds when you die are currently taxed at a punitive 55%. George Osborne confirmed that would be reduced to then beneficiary's own rate of income tax.
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.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.