Osborne’s 2016 Budget claimed to look for long term solutions for the next generation, bringing sweeping education reforms and taxes on sugary drinks.
But by far, the biggest news was the creation of the Lifetime ISA, a savings boosting scheme aimed at the young which will come into effect from April 2017.
But we also saw:
- ISA limit increased
- Personal tax allowances raised
- Taxes for ‘entrepreneurs’ slashed
- Capital Gains Tax cut
- Interest rates to steer a steady course
- Insurance Premium Tax rise
- Fuel Duty freeze
Lifetime ISAs – 25% savings boosts to under 40s
Osborne wanted to address two problems with one stone; young people not investing in pensions and struggling to buy a house.
So from April 2017, anyone under 40 can earn a 25% tax-free return on their savings with a new Lifetime ISA.
These will allow you to save a maximum of £4,000 each year, and for every £4 paid in before you turn 50 the the government will add £1.
The money can be saved until you are over 60 when you can withdraw it tax free.
Alternatively you can withdraw it buy your first home. However, you cannot use this in addition to the 25% boost from the Help to Buy ISA introduced last year.
Accounts are limited to one per person, meaning two first time buyers can receive two bonuses if buying together.
Note that if you wish to withdraw the money before you turn 60 (and don’t wish to buy a house), you will lose the government bonus and pay a 5% charge.
ISA limit increased to £20,000
In addition to the new Lifetime ISA, there were further incentives to savers.
Osborne announced that the total amount you can save each year into all ISAs will be increased from £15,240 to £20,000 from April 2017.
Personal Allowance raised
Personal Allowance (income you can earn before you start paying Income Tax) is currently £10,600, rising £11,000 in April 2016, and will now increase further to £11,500 in April 2017.
The higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and will now rise to £45,000 in April 2017.
Taxes for “entrepreneurs” slashed
Osborne wanted to encourage “micro entrepreneurs” in the “sharing economy” and so will implement two new tax-free £1,000 allowances.
So you will be no tax on the first £1,000 earned from:
- Selling goods or providing services “such as sharing power tools, providing a lift share or selling goods”
- Income from your property “such as renting a driveway or loft storage”
Osborne also reduced taxes for around half a million small businesses, raising tax free allowances to £15,000, up from £6,000.
Capital Gains Tax cut
As of April 2016, the higher rate of Capital Gains Tax (the tax you pay on profits you make from selling assets) will be cut from 28% to 20% and the basic rate from 18% to 10%.
Capital Gains Tax on property does not apply to your main residences, only to additional properties (ie flats that you let out).
Interest rates to steer a steady course
This budget hinted we’re unlikely to see rate rises encouraged by the government: Osborne hinted that he agrees with the Bank of England keeping interest rates at historic lows of 0.5%.
He left their inflation rate target unchanged at 2% and urged them to be “particularly vigilant” given turbulence in the global economy, highlighting the unprecedented negative interest rates seen in Japan and Europe.
His comments here could be interpreted as encouragement to not make any major changes to the UK economy, like a rate rise.
Insurance Premium Tax up 0.5%
The chancellor announced an increase in Insurance Premium Tax (IPT), from 9.5% to 10% of each insurance premium.
With last November’s hike in IPT, this tax has increased from 6% to 10% in the last 12 months.
The extra money raised by today’s announced increase, around £700m, will be put pack into flood defences for homes and businesses.
Fuel Duty freeze
But in positive news for motorists, Fuel Duty has been frozen for the sixth year in a row, saving the typical motorist £75 a year.
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