07 April 2015

5 things to remember about the Budget

A Budget in an election year is always likely to trigger debate – and this year’s has been no exception. However, with so much media commentary on the political implications, it can be easy to lose sight of what the Budget actually includes – and what it means for your money.

Whatever your political viewpoint, the Budget will give you a new set of choices when it comes to saving, buying your first home or planning for retirement. And for many people, it will involve having slightly more money to make those choices with. Here’s a quick reminder of the five changes that could have the biggest impact on your finances:

1. The income tax threshold is on the rise

The tax-free personal allowance, which is the amount of income that you can earn free of tax in a year, is on the rise. It has now increased to £10,600, up from £10,000 last year, although if you were born before 5 April 1938, your personal allowance will remain at £10,660, where it is at the moment.

If you’re a basic rate taxpayer, then the change will save you £120 of income tax this year, and if you’re a higher rate taxpayer your income tax saving will be £208. You get less personal allowance if your income is over £100,000 and none if it’s £121,200 or higher.

2. ISAs are becoming more flexible

At the moment, if you take money out of your ISA, you can only add more up to your unused ISA allowance in that tax year. The Budget changed this. From the autumn, savers can withdraw money from their ISA and pay it back within the same tax year. The ISA allowance, as previously announced, has gone up as well - and now stands at £15,240 for this tax year (6 April 2015). 

Find out more about ISAs.

3. Pensions choices are now available to people who already have annuities

Pensions have seen some changes, with people now free to choose whether to buy an income for life (annuity) or use the money in their pension in some other way. The Budget extended these changes by giving people who already have annuities the option of trading them in for a lump sum. Before you start thinking through your pension plans you may consider seeking independent financial advice.

The Government website www.pensionwise.gov.uk will help to explain your choices.

4. Most people's savings will soon have some protection from tax

Thanks to the new Personal Savings Allowance planned for April 2016, millions of people’s savings will soon be exempt from tax. This is regardless of whether they are wrapped in an ISA or not. Basic rate taxpayers will no longer have to pay 20% income tax on the first £1,000 that their savings earn – and higher rate taxpayers won’t have to pay their 40% income tax rate on the first £500.

5. Save in an ISA and the Government could help you buy a home

The Government is offering help to first-time buyers with plans for a Help to Buy ISA, which it intends to make available from the autumn. Under the Help to Buy ISA scheme, the Government will top up the amount that people save towards a deposit on their first home, putting in an extra £50 for every £200 saved, up to a total contribution of £3,000. 

First-time buyers will be able to keep saving into the ISA for as long as they need to, in order to build up their deposit. If they were able to save £12,000, the Government contribution would top this up to £15,000 when they bought their home.

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