16th March 2016
What the 2016 Budget means for your savings and investments
General ISA changes
• ISA allowance will rise from £15,240 to £20,000 in April 2017.
• The government will legislate to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate. Further plans for introducing this measure in 2016 will be set out following consultation, the budget says.
A new Lifetime ISA
• A new ISA—the Lifetime ISA—will be available for any adult under 40 from 6 April 2017. Its goal is to make it easier for young people to both save for a first home and save for retirement within the one simple vehicle.
• You can save up to £4,000 each year and receive a 25% bonus from the government for every pound you put into the Lifetime ISA.
• Contributions can continue to be made into the Lifetime ISA with the bonus paid up to the age of 50.
• Funds can be used to buy a first home with the government bonus at any time from 12 months after opening the Lifetime ISA account.
• If you're not using the Lifetime ISA funds to buy a first home, they can be withdrawn with the government bonus from age 60 for use in retirement.
• If you need to withdraw funds from the Lifetime ISA before age 60 and for a reason other than buying your first home, the government bonus and any interest or growth on it must be returned to the government. A 5% charge will also be applied.
• Price limit for purchasing a property using Lifetime ISA funds will be £450,000. This limit will apply nationally.
• Help to Buy ISAs can continue to be opened until November 2019 as initially planned.
• You can choose to open both a Help to Buy and a Lifetime ISA, but you will only be able to use the government bonus from one of these accounts to buy your first home.
• In the 2017-18 tax year, you will be able to transfer any savings you have already built up in a Help to Buy ISA into a Lifetime ISA and still save an additional £4,000.
Keep track of your pension
• Government has asked the industry to design, fund and launch a new pensions dashboard by 2019.
• Goal is to create a hub where you can view all your retirement savings in one place, even if you have acquired multiple pension providers.
Personal savings allowance
• From 2017, interest from bond funds will be included in the Personal Savings Allowance already announced.
Capital gains tax (CGT) changes
• Higher rate of CGT will be reduced from 28% to 20% from 6 April 2016.
• Basic rate of CGT will be reduced from 18% to 10% from 6 April 2016.
• There will be an 8 percentage point surcharge on the new rates for carried interest and for gains on residential property – with a goal of promoting investment in companies over property, the budget says.
• Principal Primary Residence will continue to be exempt from CGT.
• For long-term investors in unlisted companies, a 10% rate of CGT on newly issued shares purchased on or after 17 March 2016 will apply, provided they are held or a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10m of gains.
• For employees who own shares through an Employee Shareholder Status scheme, an individual lifetime limit of £100,000 will be introduced on gains eligible for CGT exemption through this scheme.
• As already announced in the Summer Budget 2015, the government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividends Allowance of £5,000 a year.
• The new rates of tax on dividend income above the allowance (again as already announced) will be 7.5% for basic rate tax payers, 32.5% for higher rate tax payers and 38.1% for additional rate tax payers.
Income tax & salary sacrifice changes
• Personal allowance will be increased from £11,000 in 2016-17 to £11,500 in 2017-18 (with a commitment to raise the personal allowance to £12,500 by the end of this parliament).
• Higher rate threshold will be increased by £2,000 to £45,000 in 2017-18 (with a commitment to raise the higher rate threshold to £50,000 by the end of this parliament).
• Government is considering limiting what can be included as a 'salary sacrifice benefit' from an income tax and National Insurance contribution perspective. But it says pension saving, childcare and health-related benefits such as Cycle to Work should be exempt.
A new Help to Save scheme
• For low income earners, a new Help to Save scheme will be open to 3.5 million adults in receipt of Universal Credit, with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit.
• A 50% government bonus will be provided on up to £50 of monthly savings into a Help to Save account.
• The government bonus will be paid after two years, with an option to save for a further two years – meaning people can save up to £2,400 and benefit from government bonuses worth up to £1,200.
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