What does the 2016 Budget mean for you?

Find out what the chancellor said in today’s Budget and what it means for your pocket.

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Chancellor, George Osborne, described his eighth Budget as ‘a budget for the next generation’.

Notable announcements included a new ‘Lifetime ISA’ to help those under the age of 40 save, an increase in the personal allowance and a continued freeze on fuel duty.

A rise in Insurance Premium Tax was also revealed.

Here’s a round-up of the main highlights.

Savings

From April 6, 2017, the ISA allowance will rise from £15,240 to £20,000 for everyone.

April 2017 will also see the launch of a new Lifetime ISA to encourage those between the ages of 18 and 40 to save.

Initial details show you’ll be able to save up to £4,000 a year, with the government topping up your contributions by 25% – that’s up to £1,000 a year – until your 50th birthday.

You’ll then be able to use these funds to buy your first home or save for retirement.

If you’re saving for your first home, you can use the money to buy a property worth up to £450,000, anywhere in the UK.

And if you’ve already got a Help to Buy ISA, you’ll be able to transfer those savings into your Lifetime ISA in 2017, or carry on saving in both ISAs. But you’ll only be able to use the government bonus from one of them to buy your home.

Should you wish to use the money for your retirement, you can access your cash tax-free from your 60th birthday. If you withdraw your funds before that, you’ll lose the government bonus and will have to pay a 5% charge.

Insurance Premium Tax

Insurance Premium Tax (IPT), which is levied on car insurance, home insurance, pet insurance and private medical insurance, will increase from 9.5% to 10% from October 1.

However, if you renewed your car and home insurance before November last year when IPT rose to 9.5%, you’ll have been paying IPT at a rate of just 6%, so the leap to 10% could be quite significant.

The increase will push the typical annual spend up by around £30 per household, making it more important than ever to shop around at renewal to secure the best price.

The extra £700m expected to be raised from the increase will fund improvements to the UK’s flood defences to help reduce the damage caused by heavy storms, like those that hit Scotland and the north of England last autumn and winter.

Income tax

The personal allowance for basic rate (20%) taxpayers will rise to £11,500 from April 2017 – which the chancellor says amounts to a tax cut for 31 million people and takes an extra 1.3 million of the lowest paid workers out of tax altogether.

At the same time, the threshold for the higher rate of tax (40%) will increase from £42,385 to £45,000, cutting tax for those workers by more than £400 a year and taking more than half a million people ‘who should never have been paying the higher rate’ out of the tax band, according to George Osborne.

Budget 2016 wordcloud

Infrastructure

After praising the work of the National infrastructure commission – launched last year to oversee £100bn of spending on infrastructure projects – the chancellor confirmed plans to go ahead with the HS3 rail link between Manchester and Leeds.

And to further improve the links between the cities of the Northern Powerhouse, upgrades to both the A66 and A69 will proceed, as well as a widening of the M62 to four lanes.

There will also be a tunnel road under the Pennines to link Manchester and Sheffield.

Further south, the Crossrail Two rail route will be commissioned. It will run from nine stations in Surrey to three in Hertfordshire to provide a new rail link across London on the Crossrail network.

Tolls for the Severn Crossing will also be halved by 2018.

Fuel, cigarettes and alcohol

For the sixth consecutive year, the duty on petrol and diesel has been frozen. The chancellor estimates this will save the average driver £75 a year and a small business with a van as much as £270 a year.

There was also good news for anyone partial to a pint as beer duty has been frozen along with duty on cider, Scotch whisky and spirits. Duty on all other alcohol will rise in line with inflation.

There was bad news for smokers though as from midnight tonight duty on cigarettes will rise by 2p, while tax on rolling tobacco will go up by 3p.

Digital tax breaks

Digital tax breaks, worth £1,000 each, will be available for those who sell services and items online, on the likes of Amazon Marketplace and eBay, and for those who rent out their homes online via sites such as Airbnb.

No paperwork will need to be filled in and at least half a million people are expected to benefit.    

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