George Osborne’s eighth Budget contained a host of new measures and policy changes. But there was no big “rabbit from the hat” in the Chancellor’s speech this year.
Over recent weeks, many observers had expected the Government to reform tax relief on pensions and possibly increase fuel duty for the first time in six years – but both of these proposals were ruled out by Osborne.
Instead, the Conservatives revealed a large increase in ISA allowances, as well as yet another boost for the personal tax-free earnings allowance.
Small businesses are set to benefit from a cut in business rates, while the under-40s are to be offered a new type of long-term savings scheme called a Lifetime ISA.
Here are further details of what the Chancellor announced.
From April 2017, the annual tax-free ISA allowance will rise by almost a third to £20,000 – today it stands at £15,240. This is the second significant increase that Osborne has made to ISA limits – two years ago, he raised the allowance from £11,880 to £15,000.
The £20,000 will apply to cash, stock-market investments or alternative finance schemes, such as peer-to-peer loans.
Gareth Shaw, Head of Consumer Affairs at Saga Investment Services, said: "Savers will be rejoicing with the changes to the ISA regime – a huge boost to tax-free savings and giving people flexibility to access their lifetime savings for whatever they want. This is the kind of environment that will drive people to save more money.
"ISAs are now an integral part of retirement planning. More than 12 million over-50s currently hold one, and value the benefits that these tax-efficient savings accounts can bring to their retirement finances. The Government has so far done a great job in ‘souping-up’ the ISA with an increased allowance, greater flexibility and better death benefits. This latest step should mean that ISAs become the must-have financial product for all."
The under-40s will benefit from a new Lifetime ISA, also due in April 2017: this will allow them to save up to £4,000 a year until the age of 50, with a 25% top-up paid by the Government. The money can be taken tax-free to buy a first home or, after the age of 60, to fund retirement.
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There were no big pension announcements in the Budget, but the Chancellor did spend time explaining that he had decided not to make certain changes. He said the time was not right to reform pension tax relief, and added that he was not intending to reduce the amount of money that can be taken tax-free from a pension from the current level of 25%.
The Government is planning to change the scope of workplace salary-sacrifice schemes, which allows employees to pay for the likes of childcare and computer equipment out of their pre-tax income, thereby avoiding national insurance. But the Treasury says it will continue to allow pension contributions to be made via salary sacrifice.
Ministers are also considering allowing people under the age of 55 to take up to £500 out of their pensions, tax free, to pay for financial advice.
Shaw added: “The ability for people to get early access to their savings to pay for advice is welcome. And the government has taken a sensible step by excluding pension contributions from salary sacrifice.
“However, that doesn’t mean that further reform to tax relief on pensions is completely off the table. We’ll have to wait until after the Referendum to see if the Chancellor will act to reduce the high cost of providing tax relief.”
Read more about George Osborne's u-turn on pension tax relief.
Tax on income
From April next year, the personal allowance – the amount anyone can earn before they pay income tax – will rise to £11,500 a year from its 2016-17 rate of £11,000.
The threshold for higher-rate tax will also increase, to £45,000 in April 2017.
The rate of capital-gains tax (CGT) is to be cut dramatically next month: from 6 April the rate for basic-rate taxpayers will fall to 10% from 18%, while higher- and top-rate taxpayers will see their rate fall from 28% to 20%. The new low rates will not apply to residential property (although main residences will continue to be exempt from CGT).
Osborne also said that people who sold goods on auction websites, such as eBay and Amazon Marketplace, would be able to earn up to £1,000 a year tax free – the same will apply to those who rent out their homes or spare rooms via the likes of Airbnb.
Prior to the Budget there had been speculation that motorists could be hit with a number of tax increases. But the only real change was a new rise in insurance premium tax (IPT): it will increase on 1 October this year to 10% from the current 9.5%. This follows a hike last October from the previous 6%.
IPT applies not just to car insurance but also to buildings and contents cover. The latest increase will be used to fund higher spending on the UK’s flood defences.
Read our guide to the winners and losers in this year's Budget.
Cigarettes, alcohol and fizzy drinks
As ever, the duty applied to tobacco is to be increased with immediate effect – it is up 2% for cigarettes and 3% for rolling tobacco. Taxes on beer, most types of cider, whisky and other spirits are frozen, but wine duty will continue to rise in line with inflation.
Osborne also said that he was planning to introduce a sugar tax on fizzy drinks in 2018 to help combat childhood obesity.
Click here to download an infographic of the main changes in this year's Budget.
How did the Budget affect you?
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