17 March 2016

Budget 2016: Fizz for savers, but a bad taste for fizzy drink lovers!

The under 40s will get a boost to their savings from next April if they take out the new Lifetime ISA, announced in the latest Budget. For every pound they put in savers will get a 25% bonus from the Government – so that’s potentially an extra £1,000 every year if people save the maximum £4,000.

And although it’s targeted at people aged under 40, savers will be able to pay into their Lifetime ISA and receive the Government bonus up to the age of 50.

Chancellor George Osborne said the new ISA had been created to encourage younger people to save towards their retirement, but it will also offer a helping hand to first time buyers. Savers who want to tap into their Lifetime ISA to get on the housing ladder will be able to withdraw their money after 12 months of saving. Those that already have a Help To Buy ISA will be able to transfer their money into the new Lifetime version.

People saving towards their retirement won’t be able to touch their cash until they reach 60, providing more incentive for people to save longer. If they do withdraw any money they will lose the Government bonus, as well as any interest or growth on the bonus, and pay a 5% charge. However the Government is considering allowing people to withdraw money early in certain circumstances it’s calling “life events”.

Good news for savers

In fact it was good news for savers all round because Mr Osborne also announced the traditional rise in ISA limits, up from £15,240 now to £20,000 per year from April 2017, giving people the opportunity to save even more into tax-efficient ISAs.

The Help To Save Scheme was also announced to encourage the less well-off to start saving, again by offering a Government boost to savings pots. People working but also receiving Universal Credit or Working Tax Credits will be able to save up to £50 a month, qualifying for 50% bonus after two years, potentially worth up to £600.

People can then carry on saving for another two years and receive another 50% bonus. So for people putting away the maximum £2,400 over four years, the Government will top up their savings pot by £1,200.

Sugar Tax

Lovers of sweet fizzy drinks are likely to see their tipple cost more following the announcement of the sugar tax, which is estimated to cost the equivalent of 18p to 25p per litre. Although the tax will be on drinks makers, the cost is likely to push up the price for shoppers.

The Government says the £530m the tax is set to raise will be spent on sport in primary schools. However, drinks companies have until 2018 to fiddle with their recipes to reduce the amount of sugar before the tax comes in.

Budget Bites

Other key announcements in this year’s Budget include:

  • The personal allowance will increase from £11,000 in April 2017, meaning people will be able to earn £11,500 before they have to pay tax
  • Higher earners will be able to earn £45,000 before they have to pay the higher 40% tax rate when the threshold goes up in April 2017 from the current £42,385
  • Fuel duty was frozen for another year, as were the duties on beer, cider and spirits – although wine drinkers will see tax on their tipple rise in line with inflation
  • The tax on tobacco will increase by 2% above inflation
  • The costs of insurance will go up when the Insurance Premium Tax is increased from 9.5% to 10%, partly to pay for new flood defences
  • A new “Odd Jobs Economy” allowance will be introduced allowing people to earn up to £2,000 per year via small scale jobs such as selling on E-Bay or renting out rooms on Airbnb without having to tell the taxman
  • Class 2 National Insurance contributions will be abolished in 2018, which the Government estimates will give self-employed workers a saving of £130 a year
  • Capital Gains Tax will also fall next year, from 28% to 20% and from 18% to 10% for basic rate taxpayers
  • The Chancellor announced £1.2billion to build 30,000 starter homes for first time buyers on brownfield sites, whilst existing towns will be allowed to expand by creating new garden suburbs.

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