Budget 2016: Moneywise verdict
He said the government’s consultation had found no consensus on the pensions tax system. This is a gift to higher earners who can continue to receive upfront higher-rate income tax relief on their pension contributions.
Instead, he announced a new Lifetime Isa for the under 40s coming in 2017 with a government bonus attached to it. This may well encourage more people to save but it does add to the complexity of the Isa system.
We already have a Help to Buy Isa, cash Isa, stocks and shares Isa, and a new Innovative Finance Isa is launching on 6 April. You can contribute to these within the new overall Isa limit of £20,000 from April 2017.
Rest assured that Moneywise will continue to help you decide how to save and invest within the limits. Long-term reform of the pensions system is still on the agenda and there is a danger that the Lifetime Isa could be used in the future to replace the existing pensions system.
- Drivers – no increase in fuel duty
- Under 40s – new Lifetime Isa
- Higher rate taxpayers saving for a pension who can continue to benefit from 40% tax relief on their contributions.
- People being made redundant – employer national insurance to be levied in addition to income tax on payments over £30,000 (the first £30,000 remains tax free)
- Insurance policy holders – an increase to insurance premium tax is likely to be passed to consumers
Public sector employers - have to pay more for their staff pensions.
Budget speech in 5 quotes:
“We will not burden our children and grandchildren. This is a Budget for the next generation.”
“From April next year, 600,000 small businesses will pay no business rates at all.”
“I am today providing extra funding so that by 2020 every primary and secondary school in England will be, or be in the process of becoming, an academy.”
“I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation: I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing.”
“My pension reforms have always been about giving people more freedom and more choice. So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.”
Tax allowances – some highlights:
- Income tax allowance: £11,000 in 2016/17, £11,500 in 2017/18
- Starting point for higher rate tax: £43,000 in 2016/17, £45,000 in 2017/18
- Capital gains tax: Will fall to 10% for lower rate taxpayers, 20% for higher- and additional-rate taxpayers
- NEW: £1,000 tax allowance for occasional earnings – e.g. craft sales
- NEW: £1,000 tax allowance for income from property – e.g. renting out your garage
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
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.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.