Budget 2014- how does it affect you?
So, the Budget has come and gone for another year, and if you’re feathering a nest-egg or are grey haired and wrinkly, you’re probably feeling pretty happy with yourself this morning. The Budget has been hailed as one for savers and pensioners, so how do the changes affect you?
Pensions and pensioners
In a massive turnaround, the rules regarding pensions are to change and will allow people to actually access their own money on retirement. Currently, pensioners are forced to buy an annuity, and with interest rates so low, this has meant a poor return for years of saving. New rules will allow people to access their cash immediately they retire, with a less punitive tax rate of 20% (rather than 55%).
Unsurprisingly, insurance companies who sell these annuities are unimpressed, and the value of the top pension companies on the stock market fell sharply yesterday. George has also come under fire for allowing potentially irresponsible people to spend their own money- with fears that new pensioners will just blow all their pension cash on a trip to Vegas or something. The Chancellor argues that those who have been responsible enough to save over a number of years probably have more sense.
The Chancellor also announced relaxations on the maxima for investing in Premium bonds, as well as special new Pensioner Bonds, paying "market-leading" rates, available from January to over-65s, with possible rates of 2.8% for one-year bond and 4% for three-year bond. Up to £10,000 can be saved in each bond.
ISAs and savings
The big news for savers is that, far from being cut, ISA limits have actually been increased to £15,000 per year. Not only that, but now you can invest the whole amount in cash if you so wish (currently only half of the annual limit could be held in a cash ISA), and transfer funds between a cash and shares ISA.
This is a considerable increase, and would allow savers to protect much more savings from tax. However, given that most people couldn’t afford to utilise their whole allowance beforehand, the cynical among us might wonder who exactly this change will benefit. The Institute for Public Policy Research suggested that, even assuming a massive 20% of net disposable income is available for savings, savers would need to be earning £125,000 gross a year in order to take full advantage of the changes.
In addition, the Chancellor announced a tax rate cut for those who only have savings income. The historic savings rate only applies where the only taxable income was savings income, and allowed up to £2,880 to be taxed at 10% instead of 20%. For 2015/16 onwards the starting rate for savings income will reduce from 10% to 0%, and the maximum amount of an individual’s savings income that can qualify for this starting rate will increase to £5,000.
But never fear, this Government has not forgotten the little people, and the working class should be happy with a 1p duty reduction on beer and a slashing of the Bingo duty. Because that’s not stereotypical and condescending at ALL. Fuel and cider and spirits duty have been frozen (for now), but cigarette duty will increase by 2% above inflation.
Finally, there are some changes that will directly affect your pocket. The personal allowance will hit £10,000 in April this year, a small victory for the LibDems, but the budget announced that the allowance will increase to £10,500 from April 2015. The amount of transferable personal allowance (announced last year) will also go up by £50 to £1,050.
Currently, parents can get up to 80% of childcare costs of up to £10,000 per child, aged up to 12, paid for, but now the remaining 20% can be claimed from the government tax-free with effect from September next year.
The Help to Buy scheme, which offers a loan to people buying a home in England costing up to £600,000 has been extended for four more years to 2020.
Finally, a change to green taxes on energy will save the average family £15 on their annual energy bill, which is better than nothing, but not a huge dent in the average household’s energy bill.