2015 Budget at a glance…

Chancellor George Osborne put savers to the fore in the last Budget before the General Election in May.

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Headline measures include radical changes to tax on savings interest, individual savings accounts and pension annuities that will affect almost every UK household.

Osborne also signalled the ‘death of the annual tax return’, chopped duty on beer, cider and spirits and froze it on wine and motor fuel.

A clutch of other measures affecting broadband provision, transport and business taxes were also unveiled – although it remains to be seen whether the changes will survive any political upheaval following the election.

That said, the Budget has the potential to affect your finances over the months and years ahead. So here’s our run-down of the key points from this afternoon’s speech…

Hover over the blue dots in the image below to see exactly how the Budget will affect families and family life

 Personal Savings Allowance

The show-stopper in this year’s Budget was an unprecedented tax break for savers. The chancellor announced that, from April 2016, basic rate taxpayers will be able to earn the first £1,000 of savings interest tax-free, instead of paying 20% tax.

Higher-rate taxpayers will be able to earn the first £500 of interest tax-free, instead of paying 40%.

This means that, if you saved into a top-paying easy access account (currently paying 1.5% AER), you would need a balance of around £70,000 before being hit with tax. Higher-rate taxpayers would need a balance of £35,000.

The move will mean that 95% of the country’s savers will not have to pay ANY tax on their savings income.

Previously-announced help for savers is set to kick in sooner, though, as the 10% starting rate for savings interest will be scrapped from April 6, 2015. This means that, for the next 12 months until the Chancellor’s major savings reforms kick in, anyone earning between £10,000 and £13,540 won't pay any tax on their interest, which you can read more about here.

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Individual Savings Accounts

As well the Personal Savings Allowance, which will kick in from April 2016, ISAs will become a lot more attractive from an as-yet-to-be-specified date this autumn.

The new breed of ‘fully flexible’ ISAs will enable savers to withdraw cash and deposit it again without losing their plan’s tax-free status (as happens at present). The proviso is that the balance doesn’t exceed the annual tax-free limit.

From the autumn, flexible ISAs will also be able to invest in certain bonds and other financial vehicles.

The tax-free ISA allowance is rising from £15,000 to £15,240 from April 6, 2015. But, with the Personal Savings Allowance coming into play next year, why would you need a new ISA at all from 2016?

Our expert, Dan Plant, has got some ideas:

“The policy underpinning ISAs is more long standing than this new savings tax measure, and I reckon it’s less likely to be scrapped. So for the long term, ISAs remain useful.

“And if you already have a decent-sized pot of savings, then ISAs will allow you to keep growing them and pay no tax, as the £15,000 allowance is renewed each year.

“People may also now start to use some or all of their annual allowance on stocks and shares investments, as they can use savings accounts to house their deposits.”

Dan made a couple of other points: “We should bear in mind that tax-free ‘normal’ savings accounts will still be more flexible, despite the changes to ISAs, as there is no deposit limit per year. And as you can save the thick end of £70,000 in a savings account without paying tax on the interest, many people wouldn’t need the extra £15,000 from an ISA.

“On balance, I would probably still suggest to someone with only £15,000 to save, who wanted to do it in cash, to use an ISA ahead of easy access savings – although they should give serious consideration to one of the new breed of interest-paying current account, such as Santander 123.”

Help to Buy ISA

Those battling low interest rates while trying to save for a deposit for their first home were given a surprise boost by the Chancellor. He announced the launch of a brand new Help to Buy ISA, which will be available from banks and building societies from this autumn.

You can save up to of £200 per month into the account – and, as this account is an ISA, the returns will be paid tax-free. You can kick it off with an initial deposit of £1,000.

The government will stump up a bonus equivalent to 25% of what you put into the account, up to a grand total of £3,000 if you put in the overall maximum of £12,000 – making a £15,000 deposit.

You can save more or less than £12,000. As noted, the maximum bonus will be £3,000 and, the minimum bonus payable is £400. This means you’ll need to save a minimum of £1,600 before it kicks in.

The bonus will only be paid on the purchase of your first home and up to a maximum value of £450,000 in London £250,000 everywhere else in the UK. 

This arithmetic involved means this is effectively a five-year commitment (£200 a month for 60 months) if you want to earn the full £3,000 bonus. Clearly, not everyone will be saving over that length of time before taking their first step on the housing ladder.

A word cloud of the most commonly used words in this year's Budget. The bigger the word, the more times it was used

Personal allowances

The income tax personal allowance (the point at which each person starts to pay tax on their earnings) will rise from £10,000 to £10,600 from April 2015, then to £10,800 in 2016 and £11,000 in 2017.

An increase in the personal allowance of £200 equates to an annual saving of £40.

The government’s says the move will mean four million of the lowest paid will pay no income tax at all.

Higher rate tax payers will see their threshold – the amount on which you pay 20% income tax – rise to £43,300 by 2017 (from £42,385 at present).

This is part of a long term vision to raise the lower tax band to £12,500 and the higher tax band to £50,000.

From October the national minimum wage will rise by 20p an hour to £6.70.

The married couple’s allowance, which enables some couples to transfer personal allowance from one to the other, will come into effect on April 6 at £1,100 per annum (not £1,060 as originally planned) and will be worth up to £220.

Details of personal allowances can be found here.

National Insurance (NI) contributions

Class 2 National Insurance contributions for the self-employed are to be abolished, as will employer NICs paid for employing under 21s.

Tax returns

Annual tax returns are to be abolished. From next year, new digital tax accounts will simplify and revolutionise tax returns.

Fuel, alcohol and tobacco

The chancellor has again frozen fuel duty, scrapping the planned September increase – the government estimates this ongoing freeze has knocked £10 off a tank of petrol.

And it’s good news for anyone partial to a pint as beer duty has been cut by 1p a pint – that’s the third 1p cut on the price of a pint in as many years. Cider duty and the duty on spirits will be cut by 2%. Wine duty will be frozen.

There will be no further increases on tobacco duty or gambling duty beyond those announced in the Autumn Statement in December.

Annuities

Plans were announced to give up to five million pensioners who currently are in receipt of guaranteed income for life from a pension annuity to sell their right to that income in return for lump sum.

The punitive 55% rate of tax that applies at the moment to those who ‘cash in’ their annuity will be abolished, and tax will be levied at the individual’s marginal rate.

Pension experts are eager to see the detail of how this proposal will work. But there is widespread agreement that anyone considering such a move will need to tread with extreme caution and take expert advice before proceeding.

Watch the Budget in 60 seconds

Pension lifetime allowance

From 2016, the pension lifetime allowance will fall from £1.25m to £1m.

This allowance is the amount that can be paid out from your accumulated pension investments without triggering an additional tax charge.

The Chancellor estimates that the change will affect fewer than 4% of those approaching retirement.

It will still be possible to take pension benefits of more than £1m, but amounts above the £1m level will be subject to tax at punitive rates. The tax paid varies according to whether you take an income or a lump sum, but could be from 45% to 65%.

The £1m life time allowance will be index-linked from 2018 to protect investments from the impact of inflation.

Broadband and mobiles

The chancellor announced £600million to improve the country’s mobile phone networks by clearing more spectrum bands for auction.

There were also pledges of investment for greater wifi access in public libraries and the ‘internet of things’ - which will get your smartphone talking to your fridge and other appliances.

Elsewhere in his speech, Mr Osborne touched upon a new national ambition to get ultra-fast broadband (that’s broadband with speeds of up to 100Mb and roughly five times faster than the current national average) into nearly all homes in the UK.

Inheritance tax

The chancellor announced a review of Deeds of Variation, which enable beneficiaries to change the terms of a will to redistribute bequests in a more tax-efficient manner.

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