What the Budget means for your money and savings

Marianne Curphey

There were many surprises in the 2016 Budget, now the dust has settled Marianne Curphey takes a look at what George Osbourne's  announcement means for your savings and investments.

A new savings incentive

The Chancellor George Osborne announced a surprise new savings incentive in the Budget in March 2016—the amount you can save in an individual savings account (ISA) will rise to £20,000 in April 2017.

At the moment you can save £15,240 (for the 2016–17 tax year) in an ISA, and all the money you save within it can grow tax-free. You can also withdraw the money and you won’t have to pay tax on any of the capital within it.

 

Here’s an update on the incentives for savers, and what Budget 2016 means for your money:

Individual savings accounts

The ISA allowance for the tax year (2016/17) is £15,240 but will rise to £20,000 from April 2017. ISAs are fully flexible and allow you to withdraw and replace money in the same tax year without losing your ISA tax benefits.

 

Personal savings allowance

From the start of this tax year (April 2016), the government has introduced a new Personal Savings Allowance which means that the first £1,000 of interest earned on savings will be tax-free for basic rate taxpayers. For higher-rate taxpayers, the first £500 of interest will be tax-free.

 

Dividend allowance

From the start of the 2016 tax year, there is a new annual £5,000 dividend allowance. You can earn up to £5,000 in dividends from shares and investments before you have to pay tax on them. This allowance is in addition to your personal tax allowance (see below).

 

Tax rates and thresholds

Everyone can earn £11,000 before they start paying tax—this is known as the personal allowance. From the start of the next tax year (April 2017), this will rise to £11,500.

In the current tax year you pay higher rate tax on earnings of £43,000. This threshold will rise again in April 2017 to £45,000. This increases the amount of money you can earn before you start paying tax at the 40% rate.

 

Lifetime ISA

For people aged between 18 and 40, the Chancellor introduced a new lifetime ISA which will be available from April 2017 and will allow people to save £4,000 a year. The government will add £1 for every £4 saved. Contributions into a Lifetime ISA will count towards the annual ISA allowance.

 

Capital gains tax

The Chancellor announced that capital gains tax (CGT) rates will be reduced and this will help people who have investments which they hold outside their ISAs. CGT is paid when you sell an asset or share on which you have made a profit or gain.

George Osborne announced that he is cutting the CGT rate for higher and top-rate taxpayers from 28% to 20%. For basic-rate taxpayers, the CGT rate will fall from 18% to 10%.

However, there is an exception. If you sell a property that is not your main residence—for example if you are a buy to let landlord—then you will still pay CGT at the old, higher rates.

 

Allowances to be introduced in April 2017

If you rent a room in your house or sell items on eBay then you’ll benefit from a new tax-free allowance available from next April.

George Osborne is introducing two new tax-free allowances worth £1,000 a year. The first covers selling goods or providing services—for example selling something on an auction website. The second covers income from your home, such as letting out a spare room to a lodger, renting out your driveway, or making money from letting your room on Airbnb. More details are likely to be released nearer the time.