George Osborne followed time-honoured tradition for his sixth budget and appeared on the steps of No. 11 Downing Street holding out the red case with gold letters saying “Chancellor of the Exchequer” in front of him, as if to say “it’s all in here.” Did you know that William Gladstone introduced the original budget briefcase in 1860 and that briefcase was used until 1965, when James Callaghan got a new one? Alastair Darling reverted to using the Gladstone briefcase but George Osborne had to retire it due to it falling apart.
In recent times it has felt that “falling apart” was an accurate description of many European economies, including the UK’s, but things are on the up, says the Chancellor. Overall, the 2015 Budget does have specific implications for the 50-plus population, particularly those who are savers. It also promises a positive impact on our home-buying kids, although there are new inheritance tax rules to get our heads round.
Pensions – Lifetime Allowance
We’ve recently looked at the various changes in the pension rules that come into force on 1 April 2015. However, during the Budget, the Chancellor made some additional announcements that we haven’t touched on previously. For some, the cut in the Lifetime Allowance from £1.25m to £1m is a significant change. This refers to the maximum amount you can save into a pension fund. This reduction is “a blow to high earners”, according to The Telegraph, because anyone who saves above the allowance will have to pay 55% tax on it when they withdraw the money, or buy an annuity. This reduction equates to a loss of £87,500 for a basic rate taxpayer and £37,000 for a higher rate taxpayer. On the bright side, the maximum allowance will increase in line with inflation from 2018 onwards.
The Flexible ISA and Savings Incentives
This was perhaps one of the more welcome announcements. The introduction of a flexible ISA that allows you to take you money out and put it back in later in the same year without losing your tax-free allowance. Also, the ISA allowance rises to £15,240 on 6 April 2015. The flexible ISA is available from the autumn; a date hasn’t yet been announced.
Also, in order to encourage saving – something that is rather unattractive currently with such low interest rates – from April 2016 the first £1,000 of savings will be tax-free. Do note though that this is on savings in non-ISA savings accounts.
The Personal Allowance
We all like to see the tax-free personal allowance increase and the Chancellor didn’t disappoint, with an increase to £10,060 now, rising to £11,000 by 2017. The higher rate threshold increases from £42,388 this year to £43,300 by 2017-18. Plus, if you’re married, or in a civil partnership, and one of you doesn’t earn enough to pay tax, then you can transfer £1,100 of your allowance to your partner.
The Help to Buy ISA
This was good news for young people trying to save for a deposit to buy their first home. We all know that raising a deposit has been a major stumbling block for many people in recent years. Starting from autumn 2015, the government will add £50 for every £200 you save in this type of ISA up to a maximum of £3,000. So, if you save £12,000 the government adds £3,000. It only applies to deposits for homes in London below £450,000 or below £250,000 outside the capital. However, the Institute for Fiscal Studies calls it a “dubious policy” that could push up house prices.
The Inheritance Tax Issue
Most of the measures to tackle tax avoidance were aimed at large companies, but the Chancellor did point out that he was scrutinising the way in which individuals use a “deed of variation” in a will to minimise the amount of inheritance tax paid. The outcome of his scrutiny won’t be announced until the autumn, but legal experts suggest it won’t be anything too drastic.
Help for Small Businesses
This is of particular interest to those of us in our 50s who are starting a new business. According to Prime and Cranfield School of Management there are 1.87 million people over 50 who are self-employed. George Osborne has promised to bring down business rates, although he is still in the discussion process, so we don’t know what the final reduction will be.
And, to end on an upbeat note, as every Budget really should, there’s a penny off a pint of beer and no increase in petrol tax. Also, he hasn’t touched the duty on wine; so, I’m feeling fine George!