George Osborne delivered his 8th Budget as Chancellor of the Exchequer this afternoon, calling it a “Budget for the next generation”. Despite predictions of a “quiet Budget”, there were a few headline grabbing announcements.
We summarise the key points from the Budget and what they will mean for individuals and businesses:
No pension changes, but a new “Lifetime ISA”
The Chancellor announced that a new “Lifetime ISA” will be available from April 2017 for those aged between 18 and 40 to encourage more saving. The Government is promoting a 25% bonus of up to £4,000 a year, but as always, the devil is in the detail; a 25% bonus equates to 20% of the gross amount, the same as current basic rate tax relief, and there is no additional bonus available to higher rate taxpayers, who might still be better off making pension contributions, if they’re happy to tie their money up for the longer term.
Any Lifetime ISA savings made including the bonus can be used towards the purchase of a first home, and at age 60, all the savings and bonus can be taken out tax-free. If any withdrawals are taken before age 60, the bonus will be lost, and a penalty of 5% will be deducted, but the Government is consulting on ways the bonus can be reclaimed if the savings are put back into the Lifetime ISA later on, similar to an American 401k. The Help to Buy ISA can also be rolled into the new Lifetime ISA when available.
Many will breathe a sigh of relief as sweeping changes to the existing pension regime did not come to fruition, but the Lifetime ISA could be seen as a first step toward a greater upheaval of pensions tax relief in the years to come. If they prove popular, could the Lifetime ISA freedoms be extended to all, and effectively replace pensions as we know them?
ISA limit will rise to £20,000
The ISA allowance, which has already risen substantially since 2010, will rise to £20,000 a year from April 2017 from £15,240. Together with the new savings allowance which will be available from April 6th, there are now very generous tax breaks available for savers.
Class 2 National Insurance scrapped for the Self-Employed.
Amongst several enterprise-boosting measures announced in this Budget, the Chancellor announced that from 2018, the self-employed will no longer be required to pay Class 2 National Insurance contributions.
Cuts to Capital Gains Tax.
Capital Gains Tax will be cut from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers. Combined with a more generous ISA allowance, this will benefit investors. Those with gains on their investments may be encouraged to realise existing gains during this Parliament. However, the reduction will not apply to second properties, in a further blow to buy to let investors.
Further Income Tax cuts for low and middle earners.
The tax-free Personal Allowance will rise to £11,500 from April 2017, and the level at which people start to pay higher rate tax will rise from £42,385 now to £45,000 also in April 2017. This will boost the incomes of low and middle earners, but there have been tax rises in other areas, the so-called “stealth taxes”, such as a 0.5% rise in insurance premium tax.
Amongst the measures announced was a reduction in the headline rate of corporation tax from 20% to 17% by 2020. The annual threshold for business rate relief for small business will be increased from £6,000 to £15,000, which will benefit 600,000 small businesses. Tax reductions for businesses should help to spur economic growth and jobs creation. A raft of new anti-avoidance measures for businesses were also announced which are estimated to raise an additional £12bn in taxes by 2020.
If you would like to discuss any of the changes announced in the Budget please contact your Cambrian adviser’s PA or if you do not currently have a Cambrian adviser contact us on 01244 539595 to arrange a free consultation meeting.