Budget 2015: bribes for first-time buyers and savers – you’d think there’s an election coming
Kam Patel looks over the pre-election sweeties the chancellor handed out in his last Budget before the election.
Anyone would think an election is coming. A Help-to-Buy Individual Savings Account (Isa) for first-time buyers, a raise in the personal allowance, and a move towards making most savings tax-free, are among the sweeties chancellor George Osborne has tossed to voters.
The personal allowance is already slated to increase to £10,600 in two weeks' time. In 2016/17 it will rise to £10,800 and to £11,000 in 2017-18. The marriage allowance will also rise in line with the personal allowance. Higher rate taxpayers will also gain after years of suffering fiscal drag their threshold rises to £42,700 next year and £43,000 in 2017 the first above-inflation hike for seven years.
Then there was the new Personal Savings Allowance, to encourage Britons to save more. This comes into force in April 2016 and exempts the first £1,000 of interest income on savings from any tax for basic-rate taxpayers, and the first £500 for higher-rate taxpayers. The automatic deduction of 20% income tax by banks and building societies on non-Isa savings will cease from April 2016. That effectively makes cash Isas redundant for all but the wealthiest.
Elsewhere on the Isa front, the new flexible' Isa will mean you can take money out of your Isa without losing the tax-free status as long as you put it back in that same year. Then there's the shameless gimmick of the Help-to-Buy Isa. For every £200 a first-time buyer saves, the government will top up the deposit with £50, up to a total of £15,000. So, if a first-time buyer saves £12,000, the government will cough up £3,000 to add to the pot.
We'd argue that what first-time buyers need is lower house prices, as opposed to taxpayer subsidies that will add flames to the house price fire but as politicians realise, the housing market is dear to the heart of the average British voter, so the cynicism is perhaps not surprising.
On the pensions front, the government is consulting on plans to create a second-hand annuity market. It remains to be seen how it will work as Osborne put it: "The government believes that for most people, continuing to hold annuities will be the right decision. However, for others this reform will allow them flexibility to use the value of the annuity as they see fit."
But the biggest move on pensions was the reduction in the Lifetime Allowance (LTA), from £1.25m to £1m. From 2018, the LTA will be indexed to increase in line with the consumer price index, which offset the drop slightly, but the changes came under fire from Andrew Tully, pensions technical director at MGM Advantage: "The £1m lifetime limit on pension saving is frankly penal and hits ordinary people who have started the savings habit early, saved hard, and enjoyed good investment growth The tax charge for any excess is 55%, which is pretty hefty when you might inadvertently trip over the new limit by achieving good investment performance."
As he points out, "£1m might sound like a large sum of money, but the reality is that would secure you an index-linked income of around £24,000 a year after you have taken your tax-free cash. Put in those terms, it doesn't sound as generous." On the basis of MGM calculations, Tully reckons "40 somethings with pension savings today worth around £423,000 should consider stopping saving into a pension now." You can find out more about Pensions Freedom Day with our free report here.