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Budget 2015 – what you need to know

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Chancellor George Osborne has delivered the last Budget before May’s General Election. Retiresavvy brings you a summary of the headlines and how they might affect your plans.

Pensions

  • Existing pensioners will be given the right to sell their annuities and draw down as they see fit, subject to their marginal tax rate. This extends the Pension Freedoms due to come in from April to over five million more pensioners – although the Government does say that annuities will remain ‘the right product’ for many pensioners.
  • The Lifetime Allowance that you can save into your pension pot will be reduced from £1.25 million to £1 million as of next year, but will start to rise in line with Inflation from 2018 – at the moment this affects just 4% of pension savers.

Tax & savings

  • The tax free Personal Allowance – the amount you can earn before paying Income Tax – will rise to £11,000 from 2017, while the Higher Rate threshold (40%) will rise above inflation to £43,300 from the 2017-18 tax year.
  • ‘Fully Flexible ISAs’ – from the autumn, you will be able to take money out of a given year’s ISA allowance without reducing the overall tax-free allowance. For example, if you took £1,000 out of your ISA during the year, at the moment it would effectively reduce the overall amount you can save in the year because you can’t then replace it later. Under the new system, you can pay the money back in without affecting your allowance.
  • First £1,000 of interest on savings will be tax free (£500 for Higher Rate tax-payers).
  • ‘Help to Buy ISA’ – the Government will launch dedicated ISAs for first time buyers that will top up savings by 25%, up to a maximum of £3,000 in total – so someone saving for their first house who puts £12,000 into their ISA will see the value topped up to £15,000.

Other things that might affect your wallet

  • September’s Fuel Duty increase has been frozen, saving the equivalent of £10 on an average tank. 
  • In  terms of duties on drinks, there is 1p off a pint of beer and 2% off cider and Scotch whisky.
  • The Government will abolish Self Assessment tax returns and introduce a simpler, online tax account for those who prefer to use that method, starting next year.
  • Class 2 National Insurance Contributions for the self-employed are to be abolished.

The big picture

  • Overall, the economy appears to be in better shape than was predicted in the Autumn Statement.
  • Growth for this year has been revised up slightly from 2.4% to 2.5%, and is predicted to remain at 2.3% a year for the next three years.
  • Household income – measured as Gross Domestic Product (GDP) per capita or real household disposable income per capita – is now higher than in 2010.
  • Inflation is predicted to fall to 0.2% and remain low, driven more by low oil and food prices than a weak economy.
  • Overall national debt as a proportion of GDP is expected to fall from 80.4% in 2014-15 to 80.2% in 2015-16 and to keep on falling, to reach 71.6% in 2019-20.

The view from retiresavvy

“With just seven weeks to go until the General Election, the Budget was always going to be even more political than usual.

“With a promise of no unfunded giveaways and a small windfall from lower-than-expected borrowing costs and the proceeds of unwinding bank bailouts being put towards paying down the National Debt, there was little financial room to manoeuvre.

“Most of the announced reforms amount to tinkering round the edges of the tax system in an innovative, eye-catching and – most importantly – cheap way. For example, the Treasury’s own figures show that reducing the Lifetime Allowance for pension savers to £1 million raises around £2 billion by 2020, which more or less pays for the increased savings tax threshold and Flexible ISAs.

“Be sure to come back tomorrow for our in-depth analysis of what the Budget means for pensioners.”

How do you think the Budget will affect you? If you were Chancellor, what changes would you have made? Let us know in the comments below. 

Comments

The important thing for me is the extension of the right to get out of your annuity to those, like me, who already have one because we were given no other choice. I retired at 60, 18 months ago. I am divorced, with two adult daughters. Even without allowing for the money my provider can make on what remains of my pension pot, I would need to live for 22 years to break even on the annuity. It dies with me, but it is MY money. It is mine to choose how I use it and whether I want to leave some of it for my daughters. I know it will be a complex decision, and I'm more likely to buy a Fiesta than a Ferrari, but it is absolutely my right to decide this.
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