Budget 2016 – a new lifetime ISA, a help to save account and a rise in the personal allowance

Font size

0
0
0
0

The chancellor announced a new lifetime ISA and said that the personal allowance would rise to £11,500 in April 2017. People would also be able to take money out of their pension to pay for financial advice if government plans go ahead.

Savings

  • Lifetime ISA: A lifetime ISA will be available from April 2017 to anyone aged 18 – 40. You’ll be able to pay into it until the age of 50. You can pay up to £4,000 a year into it (with no maximum monthly contribution) and the government will pay in £1,000. This is the same amount of tax relief as you get if you take out a pension and are a basic rate taxpayer. You can use the lifetime ISA to buy a first property costing up to £450,000 or to save for your retirement. The government says it will consult on whether the lifetime ISA can be used for any other life events as well as buying a first property.

SAVVY TIP: You will be able to transfer money from your help to buy ISA into the lifetime ISA, but you will only be able to use the bonus from the help to buy ISA to buy a property. You can take money out of your lifetime ISA from the age of 60 (if you’re not buying a first property). If you take any money out before you’re 60, other than to buy your first home, you will lose the government bonus and you’ll have to pay a charge of 5% of the money you’ve saved.

  • ISA allowance: the ISA allowance will rise from £15,240 to £20,000 in April 2017.
  • Help to Save: if you’re on a low income you’ll be able to save in a Help to Save account. You’ll be able to pay up to £50 a month into it and you’ll get a government bonus of up to £25 a month. The government bonus will be paid after two years and you’ll be able to save for another two years. You’ll be able to save up to £2,400 over the four years and you’ll be able to get up to £1,200 from the government. You can use the money for whatever you want.

SAVVY TIP: You’ll be able to open a Help to Save account if you are on Universal Credit and if the household earns the equivalent of 16 hours at the National Living Wage or if you’re receiving Working Tax Credit.

Pensions

  • Pensions dashboard: the pensions industry will design, fund and launch a ‘dashboard’ which will let you view all your pension savings in one place.
  • Public sector pensions: employers will have to pay a higher rate of contributions into their workers pensions from 2019-20.

Financial advice and information

  • A single, clear definition of financial advice will be introduced. On Monday (March 14th) the regulator, the FCA, published its review into financial advice. It aims to make it easier for some companies to offer guidance, rather than advice.
  • A pensions advice allowance: the government will consult on letting people take up to £500 tax free from their pensions, to be used to pay for financial advice. This would be something that people under the age of 55 could do.
  • Money Advice Service: the Money Advice Service will be replaced by a new money guidance body, which will focus on funding third parties to deliver debt advice and money guidance.
  • New pensions guidance body: The Pensions Advisory Service and Pension Wise will be merged to provide people with pensions information and guidance.

Tax

  • Personal allowance up: the personal allowance will rise from £11,000 in 2016-17 to £11,500 in 2017-18.
  • The 40% threshold up: the 40% threshold will rise from £43,000 in 2016–17 to £45,000 in 2017-18.
  • Class 2 National Insurance to be abolished: From April 2018, Class 2 NI will be abolished. This is paid by self-employed people and it is the National Insurance that entitles you to the state pension and benefits.

SAVVY TIP: There has been a consultation – including into how self-employed people maintain their entitlement to state benefits. It has looked at a range of options, including Class 4 National Insurance giving entitlement to benefits (you only pay this if you reach a certain level of profits). The consultation has closed and the government will announce more detail in due course.

  • Property and trading allowance of £1,000: A new allowance of £1,000 will be introduced for ‘micro-entrepreneurs’ who rent out their property or trade online. It will come into effect from April 2017.
  • Capital gains tax: from April 6th 2016, the higher rate of capital gains tax (CGT) will be reduced from 28% to 20%. The basic rate will be reduced from 18% to 10%. This lower rate wouldn’t apply to profit from selling property.
  • Capital gains tax on newly issued shares: There will be a 10% capital gains tax rate for profits on newly issued shares in unlisted companies bought on or after March 17th 2016, as long as you keep them for three years.
  • Pay as you go tax: from April 2018, if you’re a business, are self-employed or a landlord keeping digital records and providing regular digital updates to HM Revenue and Customs, you’ll be able to pay tax on a ‘pay as you go’ basis, to ‘help you manage cashflow’.
  • Simplification of tax: the government is looking at ways to simplify tax rules for businesses, landlords and those who are self-employed.
  • Improvements to HMRC call centres: Call centres will be open seven days a week by 2017 and call waiting times will be reduced (it doesn’t say what by or what to). There will also be a dedicated phone line and online forum for new businesses and self-employed people.

Work and self-employment

  • Minimum wage: the minimum wage for workers aged 21 to 24 over will be £6.95 from October 2016 (the National Living Wage will be paid to workers 25 and over at £7.20 an hour).
  • Redundancy pay offs: At the moment, you can get up to £30,000 from your employer free of tax. From April 2018, payments above £30,000 will be subject to employer National Insurance contributions.
  • Salary sacrifice: The government is looking to limit the range of benefits that can be offered via salary sacrifice. However, it’s said that pensions, childcare, cycle to work and other health-related benefits will still be able to be offered via salary sacrifice.
  • Consultancy/contracting via limited companies: From April 2017, public sector employers or their agencies will become responsible for determining if someone is an employee and for paying the right tax.
  • Loans to avoid tax and National Insurance: from April 6th, loans to company directors will attract tax at 32.5% – up from the current rate of 25%.
  • Cash in hand economy: The government will consult on tougher penalties for businesses and traders that have been found to avoid tax but that haven’t changed their behaviour.

Housing and property

  • Stamp duty: stamp duty rates will rise from April 1st for people buying a second property. Two changes were announced in the Budget today. The first is that if you have an existing home and you’re buying a second property, under the original plans you’d have to pay the higher stamp duty and you’d have 18 months to reclaim it if you sell your existing home. That’s been extended to three years. The higher rate of stamp duty will also apply to those who own 15 properties or more.
  • Affordable homes: the delivery of 13,000 affordable homes two years early by bringing forward capital spending to 2017-18 and 2018-19.
  • Planning process: measures to speed up the planning process will be introduced.
  • Releasing public sector land: local authorities will collaborate with government to release land for 160,000 homes.
  • Garden towns: the government will make it easier for local authorities to create new garden towns.
  • Garden villages and market towns: there will be government technical and financial support for areas that want to establish garden villages and market towns of between 1,500 and 10,000 homes.

Insurance

  • Insurance premium tax rise: Insurance premium tax (IPT) is currently charged at 20% on travel insurance and 9.5% on policies including car, pet, home and private medical insurance. All the money raised from this will be used for flood defences.

Childcare

  • Shared parental leave and pay: there will be a consultation in May 2016 to extend shared parental leave and pay to working grandparents.
  • Parents returning to work: the so-called ‘nudge unit’ (the behavioural insights team) will look at new ways to ‘support parents’ when they’re choosing how and when to return to work.
  • Childcare tax allowance: the tax break, worth up to £2,000 a year for parents, has already been announced and will be introduced in April 2017. In the Budget, the chancellor said that all parents eligible for the scheme would be enrolled by the end of 2017 and the youngest children would be covered by the scheme first. Employer childcare vouchers would be available until April 2018, as a transitional measure.

Students

  • Loans for adult study: these loans will be available for adults studying any qualification right up to Ph D level.
  • Loans of up to £25,000: these will be available to any English student without a Research Council living allowance who wins a place for doctoral study in a UK university.
  • Loans for Master’s degrees: these will be available to fund three year part-time courses where there’s no full-time equivalent.

Cars

  • Fuel duty: will be frozen at 57.95 pence per litre for 2016-17.

Drinks and tobacco

  • Alcohol duty frozen: duty on beer, most ciders and spirits will be frozen.
  • Duty on hand-rolled tobacco: will rise by 3% above the escalator from 6pm today.
  • Duty on cigarettes: will rise by the escalator.

Miscellaneous

  • Lloyds Bank: the government says it’s committed to selling off its stake in Lloyds Bank in the next tax year (2016-17).
  • Current account switching: make improvement to the current account switching service. This could include making sure that the payment redirection service continues until 13 months have elapsed with no payments going to the wrong bank.
  • Claims management company regulation: regulation of claims management companies will be tougher and managers will be held personally accountable for the actions of their business.
  • Pothole action fund (!): A £50 million fund will be set up for England in 2016-17 so councils can fill in potholes.
  • Legal services: the government will launch a consultation to make it easier for new entrants to offer legal services.
  • Ofgem given more power: the energy regulator will have more power to ensure that industry codes support competition.

Related articles: 

SavvyWoman email newsletters: If you found this information useful why not sign up now to receive free fortnightly email newsletters with money saving tips and help? You can sign up at the top of any page on the website and your details won’t be passed to any other company for marketing purposes.