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Budget 2014: what it means for you and your money
George Osborne, the Chancellor of the Exchequer, has delivered his fifth Budget to the House of Commons. This time around, there were several surprises, including some major changes to savings and private pensions.
Here’s what he had to say and what it means for your money.
Personal tax allowance
As predicted, the personal allowance, the amount you earn before you start paying Income Tax, will rise to £10,500 from next year. The threshold for paying the 40% higher rate of Income Tax will rise to £41,865 next month, then by a further 1% next year. However, the latter was just confirmation of an earlier pledge made in the 2012 Autumn Statement, not a new announcement.
Savings
Helping savers is the “centrepiece” of the Government’s plans.
ISAs will become simpler, with the merging of Cash and Stocks & Shares ISAs into a single New ISA. The annual limit on how much you can save in an ISA will rise to £15,000 from 1st July and allow money to be moved from shares into cash (something that is currently prohibited).
The Junior ISA limit will also increase to £4,000 a year.
The amount you can put into Premium Bonds will also increase from £30,000 to £40,000 from June 2014. It will then jump to £50,000 in 2015/16. And the number of £1 million winners will be doubled from one a month to two.
Low income savers will no longer face a 10% tax rate on savings income. And the amount of savings income that will enjoy this new 0% rate will jump from £2,880 to £5,000 from April 2015.
Pensions
The Government will legislate to remove all limits on how pensioners can access their pension savings, meaning no one will be forced to buy an annuity.
It will also introduce a new guarantee that everyone who retires on a defined contribution scheme, such as the new workplace pension scheme, will be offered free, impartial face-to-face advice. A sum of £20 million is being spent on developing this new right to advice, which will launch next April.
If you decide to take all of your pension savings at once it will be taxed as normal income, instead of at the current 55% rate.
People will now be allowed to withdraw their private pension pots, what's known as flexible drawdown, so long as they have an annual income of at least £12,000 from other sources. This has been reduced from £20,000. The amount of your pension that you can take as a lump sum is also increasing from £18,000 to £30,000.
The maximum size of a small pension pot which can be taken as a lump sum is also jumping significantly, from £2,000 to £10,000. Up to three pension pots of up to £10,000 can be taken, instead of two.
And the amount you can withdraw via what's known as capped drawdown will increase from 120% to 150% of the equivalent value of an annuity.
These last five changes changes will be coming into effect from 27th March.
New pensioner bonds will be issued by National Savings & Investments. Open to everyone aged 65 or over from next January, the rates will be set in the autumn. The current assumption is that they will pay an interest rate of 2.8% on a one-year bond and 4% on a three-year bond. An annual investment limit of £10,000 per bond will apply. Income from these will be taxed at your normal tax rate.
Air passenger duty
Reform is on the way. From next year all long-haul flights will carry the same lower band as flights to the United States of America. Good news if you’re heading off somewhere exotic.
Housing
There will be further reforms to planning rules to ensure more homes are built.
There will be £150 million to help people build their own homes. The current support for mortgage interest scheme will be extended to 2016.
As we already knew, the Help to Buy: equity loan scheme will be extended until 2020.
The Government claims 200,000 new homes will be built as a result of these measures.
Roads
Following the dreadful weather this winter, £200 million will be set aside to help fix the nation’s potholes.
Energy
There will be £7 billion to cut energy bills for businesses and families. Families will save £15 on their energy bills a year thanks to capping of the Carbon Price Support rate, on top of the £50 of savings from changes to green levies at the start of the year.
Welfare cap
There will be a permanent cap on welfare spending. This will be set at £119 billion in 2015/6, and then rise in line with inflation.
However, the State Pension and some unemployment benefits won’t be included in this.
Fuel duty
The fuel duty rise planned for September will not take place.
Bingo duty
This has been halved to 10%.
Tobacco duty
Price escalator was due to end next year but will be extended for the rest of the next parliament. As a result, tobacco prices will continue to rise by 2% above inflation.
Alcohol duty
The duty escalator has been scrapped for all alcohol duties. Instead it will rise with inflation, with certain exceptions (Scottish whisky, ordinary cider). Beer duty has been cut by 1p.
New £1 coin
To counter the fact that one in 30 £1 coins are now fakes, a new, secure £1 coin will be introduced.
Childcare support
The Chancellor talked about the new childcare support the Government is going to offer from 2015, which was officially announced yesterday.
