What a Tory government means for your wallet
With David Cameron's Conservatives heading back to No.10 alone, the 52% of Moneywise readers who told us they believed the party would be best for their household finances in our pre-election poll will be relieved.
So what can the nation expect for their finances under a Tory government? Here the experts share their views.
Pensions: Higher-rate taxpayers need to act now
Tom McPhail, head of pensions research at Hargreaves Lansdown, has warned higher-rate taxpayers to take advantage of tax relief on their pension contributions while they still can.
He said: "After the seismic changes in the 2014 Budget, further changes to pension taxation seem inevitable, particularly for higher earners. In particular, given the manifesto proposals, anyone with plans to make pension contributions in the immediate future and particularly those paying higher rates of tax should consider acting sooner rather than later.
"In their pre-election Manifesto, the Conservatives announced plans to cut pension tax relief for high earners."
"There is currently a provision, which allows an investor to contribute more than the annual allowance [of £40,000] by ‘carrying forward' any unused annual allowance from the last three tax years. The Conservatives have not confirmed if they plan to target this opportunity."
Annuity rates could rise
With bond yields edging upwards in recent weeks (15-year gilts up from 1.7% on 30 January to 2.3% on 7 May), McPhail said this could mean annuity rates could get pulled upwards "in the days and weeks to come". But, he added, "we have had so many false dawns in the annuity market over the past five years that investors should be wary of pinning their hopes on a significant improvement in the rates".
Property: House prices will start to rise
Charlie Ellingworth from independent buying agents Property Vision is optimistic about the prospects for the housing market but is wary of prices rising too quickly.
He said: "This election result is an unambiguously positive result for the housing market. The spectre of a mansion tax has haunted the market for the first half of this year and now that threat has gone turnover will certainly pick up. One has to hope that will not cause further crazy upward spirals in prices.
"If the Conservatives have any sense they will spike the Labour guns for the future by reforming the council tax bands. It is also to be hoped that they will somehow manage to kick the insane Right to Buy election pledge into the long grass where it deserves to stay."
Savings: two new Isas
A consultation has been underway to decide how exactly a peer-to-peer Isa will work in practice. It could be a new third Isa enabling people to invest in peer-to-peer (P2P) products within a tax-free wrapper outside of a stocks and shares Isa or cash Isa.
The fledgling P2P industry, which sees savers lend money directly via websites such as Ratesetter and Zopa in order to gain better returns on their money, has seen £1.6 billion lent to borrowers so far.
While no decisions have yet been made, the Isas could be available as soon as April 2016.
As for Help to Buy Isas that will top up the savings of those trying to build up a deposit for their first home, the accounts are expected to become available from around September. It is thought they will sit alongside cash Isas, so anything a saver wishes to deposit will come out of their cash Isa allowance. The accounts are are still in the planning stage but here’s what we know so far.
The maximum an individual will initially be able to pay in to open the Isa will be £1,000. From the next month onwards, they will be able to make further deposits of up to £200 each time.
The government will reward their saving habit by paying a £50 bonus for every £200 saved when they buy a home. The minimum bonus the government will pay is set at £400, meaning the saver must have built up a balance of at least £1,600. This sum would take at least four months to build up.
The government bonus will be capped at £3,000 and a saver would have to save £12,000 in the account to qualify for the maximum bonus. However, it would take more than four years for a saver to build up £12,000 in the Isa.
The government will pay the bonus when the saver’s home purchase is being completed
Savings: new tax-free allowance
From April 2016, 95% of UK taxpayers will no longer have to pay tax on savings interest at all. In the Chancellor’s Budget in March 2015, George Osborne announced the introduction of the annual Personal Savings Allowance that will make the first £1,000 of interest earned from savings completely tax-free for basic-rate taxpayers from April 2016. You would have to have £50,000 in an account paying 2% to generate £1,000 of interest (gross) a year. Higher-rate taxpayers will also have an allowance but this is lower at £500.
The allowance means anyone earning up to £42,700 (basic-rate taxpayers) and enjoying interest on their non-Isa savings of, say, £800, would be able to keep it all tax-free. But should the interest amount to, say, £1,200, then they would have to pay tax on £200 over and above the maxium £1,000 allowance. Similarly, those earning £42,701 to £150,000 and receiving savings interest of £800 would enjoy the first £500 of it tax-free but would have to pay tax on the remaining £300.
While the changes mean that there won’t be any real difference between cash Isas and normal savings accounts in terms of tax treatment from one year to the next, for basic-rate taxpayers – as mentioned above – it is over the long-term that Isas will really come into their own. If you’re fortunate enough to be able to use your full annual Isa allowance, it will only take you four years to build up a £50,000 pot that could generate the maximum personal savings allowance of £1,000 interest (gross, assuming a 2% interest rate).
As for the running of an Isa, although some allow you to pay money in one day and withdraw it the next, if you do take money out you won’t be able to replace that part of your Isa allowance for the rest of the current tax year. However, this rule – which has been in place since the introduction of Isas in 1999 – is being scrapped in autumn 2015. So people will be able to repay in any money they withdraw within the same tax year.
Investment: Boost to UK markets and funds
Interactive Investor's head of investment Rebecca O'Keeffe said: "UK equities are buzzing after a clear mandate for the incumbent Conservative government delivered certainty for investors. The government and Central Bank have actively supported small to medium-seized enterprises over the past five years, and the prospect of further backing and a pro-business directive is positive for UK markets, in particular smaller, UK-focused companies.
"Potential overseas investors will also be looking at the UK with new-found interest."
In terms of individual investment sectors, Laith Khalaf, senior analyst at Hargreaves Lansdown, added: "The receding chance of an energy price cap, promised by the Labour party, has put the wind in the sails of utility companies, which rose by 4% in early trading, with Centrica rising by 7% and SSE rising by 5%.
"Likewise the housebuilders also feature highly in the winners' list, with Persimmon, Barratt and Taylor Wimpey all rising by over 4%, now the mansion tax looks to be out of the picture.
"Financials also saw gains with Lloyds rising 6% and Royal Bank of Scotland rising 5%."
Income tax: Personal allowance and higher-rate threshold to rise
Energy prices - “pretty significant cuts”
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
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.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
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.