Karen Barrett, chief executive of unbiased.co.uk, comments on today’s Budget:
‘So the so-called “Pension ISA” made an appearance after all – in a sense. After being told that the Chancellor might abolish the current system of pension tax relief to replace it with an ISA style system, and then being told he had performed a U-turn, we did not expect much in the way of pension reform. What has happened is that pensions are remaining as they are, for now – but a new and interesting beast has joined them.
‘George Osborne’s new “Lifetime ISA”, available from April 2017, will be like a hybrid of an ISA and a pension. Available only to the under-40s, it’s clearly designed to encourage saving among the young who might not yet be thinking about pensions. It offers the same level of top-up as a basic-rate pension, with £1 added for every £4 saved – the equivalent of 20 per cent tax relief. It also offers tax-free growth and tax-free withdrawal, making it actually the most tax-sheltered product out there.
‘The best aspect, as far as younger people are concerned, is the ability to withdraw money from this ISA at any stage of life, not just at retirement. The Chancellors stipulated it was mainly for ‘first homes’ and retirement, so the top-up applies only in those situations (but withdrawals can be made for any reason, just without the top-up). It will also be possible to roll an existing Help-to-Buy ISA into a Lifetime ISA, so those already saving for a home won’t miss out.
‘The challenge for younger savers will be to decide how to manage their money with respect to these life goals – and to remember not to neglect their retirement savings or use them up too soon. These individuals will still be automatically enrolled into workplace pensions, and should make as much use of them as they can. Meanwhile those who will be over 40 next year, who have just missed out, may need to refocus their thinking to ensure they plan properly for retirement.
‘Ordinary savers have also had a big gift in the raising of the ISA limit from £15,000 to £20,000. Despite the prospect of all cash savings having tax-free interest soon for most savers, this is still very useful for higher earners and those who want to invest in stocks & shares. The broader advantages of an ISA should also be borne in mind.
‘The reductions in capital gains tax are massive: down from 28 per cent to 20 per cent for higher rate taxpayers, and from 18 per cent to 10 per cent for basic rate taxpayers. This is great news for those investing in shares and also perhaps an olive branch for landlords, who have been the whipping-boys for this particular Chancellor for a while now. The CGT cut could see a surge in the sale of rental properties by those who want to get out of the game, or boost the sales of second homes.
‘There was also good news for earners at both ends of the spectrum. From April 2017 the personal tax allowance is being raised to £11,500, while the higher-rate threshold will increase to £45,000. Some borderline earners who will fall out of the higher-rate band may want to make additional pension payments now, as they will lose their higher-rate tax relief on contributions – every silver lining has a cloud!
SMEs and self-employed
‘Other concessions came for SMEs and the self-employed, with corporation tax falling to 17 per cent by 2020, a new fairer system of stamp duty on commercial properties, and the end of type 2 NI contributions to give the self-employed a tax boost. All in all it has been a good Budget for entrepreneurs.
Money Advice Service and access to advice
‘The abolition of the Money Advice Service came as no great surprise. It was never able to deliver actual advice, just information, and there were already better services available. At unbiased.co.uk we have helped millions of people to find the advice they need, on everything from savings to retirement. Anyone who wants to discuss the implications of this Budget for them personally can find a local regulated adviser there today.’
For more information contact:
Anna Schirmer/ Freddie Saunders, Lansons: 020 7294 3682
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