Budget 2014 at a glance

Delivering what he called a Budget for ‘makers, doers and savers’ Chancellor, George Osborne certainly caught people by surprise with radical changes to individual savings accounts (ISA) and pensions.

Looking for our coverage of the 2015 Budget? It's here.

New ISAs will be available from July 1 and will have a much higher allowance of £15,000 – and you’ll be able to pump in the full amount in cash, and transfer between cash and stocks and shares options and vice versa. A new Pensioner Bond paying ‘market leading’ rates of interest will be available from next January.



The Chancellor is scrapping the obligation on pensioners to buy an annuity, saying he trusts people to use their pension pots wisely. Those who do plump for the certainty an annuity offers will be given free and impartial advice to help them find the best deal.

Read on for details of these announcements and a round-up of the other measures in the Chancellor’s speech…

Personal allowances

The personal allowance, which is the amount you can earn before you have to pay income tax, will rise to £10,000 from the current level of £9,440, when the new tax year starts on April 6. The Chancellor announced a further increase in April next year, which will take the personal allowance to £10,500 – this is more than the planned rise that was set to be in line with the increase in the Consumer Price Index (CPI).

As has been the case the last few years, the ceiling for paying the 20% tax rate has fallen again, down from £32,010 of taxable income to £31,865. This means that, since the coalition government took office four years ago, the higher rate threshold has dropped by £4,910 and in the process dragged a further 1.1 million taxpayers into the higher 40% band.

From next month, anyone earning £41,865 will pay 40% tax.

The Financial Times has estimated that if the threshold for paying the higher rate of tax had been kept in line with the growth in wages over the last four decades, it wouldn’t kick in until taxpayers were earning £75,700 a year.

And while the government points out that the cumulative effect of the increases to personal allowances has removed 2.7 million of the UK’s lowest earners from the tax system, the lowering of the higher rate threshold over time means there are now 4.4 million higher-rate tax payers and a further 313,000 paying the additional tax rate of 45% - which is basically bad news for the ‘middle earners’. Find out more about your tax allowances here.

Wage growth appears to be picking up, with average earnings having increased by 1.4% in the year to January, but the figure still well below the annual inflation rate of 1.9%. The minimum wage has been increased to £6.50 per hour.

National Insurance (NI) contributions

The primary NI threshold for employees will increase from £7,755 to £7,956, while the upper earnings limit will rise from £41,450 to £41,865.

In addition, the new NI employment allowance takes effect in April, meaning the first £2,000 will be removed from the NI bill of every business and charity.

Savings

The Chancellor promised that savers would be ‘central’ to this year’s Budget – and he didn’t let them down. He announced that, from July 1 2014, the New ISA (NISA) limit will be increased to £15,000 – and that the current stocks and shares ISA and cash limits would be merged. This will mean savers can transfer stocks and shares balances into cash ISAs as well as the other way around.

Between April 6 and July 1, 2014 the total tax-free ISA allowance will remain at £11,880, only half of which can be saved in cash. Read more about this in Melanie Wright’s article.

The government will also raise the limits for Junior ISAs and Child Trust Funds from £3,720 to £4,000. This will take effect from July 1 this year.

The government also confirmed that the 10% tax rate for less well-off savers will be abolished and the nil-rate band extended to £5,000.

The cap on Premium Bonds saving will also be lifted from £30,000 to £40,000 in June this year, and up again to £50,000 next year.

Finally, the Chancellor confirmed that cash held in peer-to-peer loans would come under the same tax-free ISA rules, although no date has been confirmed from when this will take effect.

Pensioners

The Chancellor announced radical changes to defined contribution (DC) pension schemes – plans where individuals pay in a certain amount each month and the size of the eventual pension is determined by investment performance.

At present, most people in DC schemes have to use the bulk of their pension to buy an annuity, and few shop around to find the best rate, which they lock into for life. In future, it will not be compulsory to buy an annuity – people will instead be free to ‘draw down’ funds from their accumulated pension pot.

Those who prefer the security of an annuity, which pays a guaranteed income until death, will be offered free, impartial advice and encouraged to shop around to get the best deal.

The Chancellor also announced a brand new savings scheme for the over-65s called Pensioner Bonds. It will be issued by National Savings & Investments (NS&I) and available from January 2015. He said that rates of around 2.8% would be available on a one-year bond while you could get up to 4% on a three-year bond – the precise rates will be decided in the autumn. The maximum balance in these accounts will be £10,000.

Capital Gains Tax (CGT)

As already announced, from April 2015, CGT will apply to foreign investors if they sell any home in the UK that’s not their main home. At the moment, UK basic rate tax payers pay 18% of their gains on such properties, while higher rate tax payers are charged 28% (on gains above £10,600).

The CGT threshold will rise by £200, from £10,900 to £11,100 by 2016 and, as of this April, the exemption period for CGT will be cut from 36 months to 18 months. There will also be a restriction on owners being able to avoid paying CGT when selling their main home, even if they stopped living in it up to three years ago.

Property

The government had already announced that it would extend the equity loan phase of the Help to Buy scheme until 2020 to support the building of more than 200,000 new homes. Under this part of the scheme, a buyer only needs to raise a 5% deposit and will receive a 20% loan from the government which is interest-free for the first five years. This part of the scheme only applies to new-build homes.

The second part of Help to Buy, where the government offers a guarantee to a mortgage lender for up to 15% of the property value if the buyer can put down at least 5%, is still scheduled to end in December 2016. 

The Chancellor also confirmed the construction of 15,000 homes in Ebbsfleet, Kent in the first garden city to be built in the UK for 100 years. Regeneration plans were also announced in Brent Cross and Barking Riverside in London.

Hopes were dashed, however, of a new 2% Stamp Duty tier for homes costing over £250,000 – but the Chancellor did confirm that any corporation buying a home worth more than £500,000 (rather than the previous £2m) would have to pay the land tax at a rate of 15%.

Childcare and welfare

The Chancellor confirmed that, as announced yesterday, 1.9 million working families will benefit from a childcare tax break worth up to £2,000 per child due to be introduced in autumn 2015. This will apply to all children under the age of 12 where both parents are working and not earning more than a combined £150,000 each a year.

This scheme was first announced in last year’s Budget, but originally only offered help of up to £1,200 per child, and was due to be phased in slowly over a seven year period. It will now be available for all children under the age of 12 within a year. To find out more about how the scheme will operate, read Melanie Wright’s article, Working parents to get more help with childcare costs.

The Chancellor also announced that total government spending on welfare will be capped at £119 billion in 2015/16. The ceiling will rise in line with inflation to £127 billion in 2018/19. The state pension and unemployment benefits will not be included.

Fuel, alcohol and tobacco

As expected, the rise in fuel duty planned for September this year will now be scrapped and fuel duty will be frozen.

Fixed odds betting terminals will now be taxed at a higher rate of 25% and there will also be an extension of the horse race betting levy to bookmakers based offshore. Conversely, bingo duty will be halved to 10% to help stop the decline of bingo halls, which have plummeted in number by three quarters over the last 30 years.

It’s bad news for smokers again as tobacco duty will once more rise by 2% above inflation and the escalator will continue – it was due to end next year. This will push the typical price of a pack of 20 cigarettes to around £8.20.

Better news for drinkers though: not only will the duty on spirits and cider be frozen, the beer tax escalator will be scrapped and there will be a penny off a pint of beer for the second year running.

Energy

As part of a £7bn package of measures designed to reduce business energy bills, the Chancellor has frozen the carbon floor price, which is effectively a tax paid by energy producers for using fossil fuels. He estimates this will also trim energy bills by £15 in 2018-19.

Check out our as-it-happened coverage with our special 2014 Budget page.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

Compare Savings accounts
 

 

Did you enjoy that? Why not share this article

SAVE MONEY NOW

Other articles you might like

Popular guides