George Osborne recently delivered the annual budget, revealing how the financial landscape is going to change for the people of the UK in the near future. Some of the key points contained within the Budget that will impact the finances of individuals included:
Personal Income Tax Thresholds
The thresholds for paying both standard and higher rates of personal income tax will be raised, leaving people across all income brackets taking home more of their pay. The tax-free personal allowance – the amount that is taken home before even standard rate tax starts to be deducted from earnings, is to increase to £11,500 as of April next year. This year’s personal allowance is £11,500. The threshold for paying the 40% higher rate of income tax is currently £42,385, but in April next year this will increase to £45,000. This last measure will have to be adopted separately by the Scottish government if it is apply to Scottish taxpayers. Currently, it is not known whether this will be the case.
Capital Gains Tax
Another change to personal taxation announced in the budget will affect capital gains tax. Currently, the basic rate of Capital Gains is 18% and the higher rate is 28%. Both of these rates are going to be cut significantly, to a basic rate of just 10% and a higher rate of 20%. This change is due to take effect very soon, at the start of the new tax year on 6th April this year. However, there are some situations in which the cut to this rate will not apply. Perhaps most significantly, the sale of a property other than your primary residence – such as an investment property or second home – will still be subject to the old rates.
Savings and Pensions
Some significant changes have been announced to personal savings, including pensions. The annual limit for ISA saving is going to be increased from its current rate of £15,240 to a new, higher rate of £20,000. Lower-paid workers will gain access to a new savings scheme, backed by the government, which could have a total value of up to £1,200 over a period of four years.
Perhaps the most significant reform to savings and pensions, however, is the introduction of the Lifetime ISA. People under 40 will be able to open this kind of ISA, which is designed for those who want to save for retirement or for a home purchase. The government will give a 25% top-up on up to £4,000 of savings depositied in the ISA each year, redeemable when funds are withdrawn in order to fund a home deposit or in retirement. Funds can be withdrawn from the ISA for other reasons, but will not be eligible for the bonus.