Budget boost for savers prompts fresh thinking

By Stephen Womack, Chartered Financial Planner at David Williams IFA

SAVERS AND INVESTORS are set to profit from a raft of Budget changes, as the Chancellor retreated from plans to strip top earners of pension tax breaks.

The Budget signals new opportunities for higher earners and their families to plan for the future, with additional tax breaks to support long term savings.

David Williams IFA, Northamptonshire’s biggest Chartered Financial Planning practice, is already crunching the numbers to help clients make the most of the Budget changes.

The biggest announcement is the introduction of a Lifetime ISA from April next year. This is open to those aged under 40. It tops up your own savings with a bonus from the taxman worth up to £1000 per year, providing the money is used to buy a house or support retirement.

Money within the Lifetime ISA (LISA) can be drawn tax-free, either to buy a first home at any age or from age 60. Early access will be permitted, but at the cost of the Government bonus.

This LISA can run in parallel pensions, which still offer more generous up-front tax breaks for 40% taxpayers and often a contribution in from employers.

While the LISA is aimed at a younger generation, there is nothing to stop parents or grandparents contributing towards savings. This allows families to plan efficiently across the generations.

The standard ISA will remain. Savers of all ages will benefit from a big boost to the annual allowance. This rises from £15,240 in tax year 2016/17 to £20,000 from April 2017.

One surprise Budget announcement is a reduction in Capital Gains Tax. The rate falls from 28% to 20% for higher rate tax payers and from 18% to 10% for basic rate taxpayers. This means investment profits are now taxed at half the rate of earned income, and rewards those who structure their investments to produce capital returns not income – a longstanding approach for clients of David Williams IFA.

However, the lower CGT rate will not apply to gains on property, with sales of buy-to-lets taxed at the old rate.

The best news for most business owners was the change that did not happen. The Chancellor backed-off from plans to cut pension tax relief for 40% and 45% taxpayers. He also left pension salary sacrifice schemes intact, preserving employer National Insurance savings on workplace pensions.

To find out more about what the Budget means for you and to contact a Chartered Financial Planner, call 01604 621302.