Budget 2015: 4 reasons for savers to cheer
Tuesday, March 31, 2015
This year's Budget included much to cheer UK savers. Millions will no longer have to pay tax on their savings interest, and there's a new ISA for first time buyers. Here are the key points…
1. Less interest to pay on savings tax
From April 2016, a new Personal Savings Allowance means you won't pay any tax on the first £1,000 (£500 for higher rate taxpayers) of interest on your savings. If you're a basic rate taxpayer earning the full £1,000 in interest, this will save you up to £200 a year.
This is in addition to last year's announcement that anyone with an income of less than £15,600 will not have to pay tax on their interest, which comes into effect in April this year.
While this is a bonus for savers as banks and building societies will stop automatically deducting 20% income tax from the interest earned on any non-ISA savings, the fact that interest rates are still very low means that few will actually be able to benefit from that full £200. To hit the £1,000 limit, you'd need to put away £50,000 in a savings account paying interest at 2%.
That said, it's still good news - the government says these measures will take 95% of taxpayers out of savings tax altogether.
2. You can replace money you take out of your ISA
As well as bumping up the annual ISA allowance to £15,240, from April 2015 you'll also be able to replace any money you take out of your ISA without losing its tax benefits. The only condition is that you replace it within the same tax year.
Getting rid of this restriction removes confusion and gives ISA savers greater freedom to dip into their savings.
3. A new Help to Buy ISA
To help first time buyers save for their deposit, the government is introducing a Help to Buy ISA. With this, you'll get an extra £50 for every £200 saved, up to a maximum of £3,000, therefore by saving £12,000 the Government bonus will boost this to £15,000.
This will be available to anyone aged 16 or over from Autumn 2015, and the bonus will be paid when you buy your first home. The maximum you can save each month is £200 and they're limited to one per person, rather than one per property, so that those buying together can both receive a bonus.
4. You can earn more before you're taxed
From this April, the income tax allowance for those born after 5th April 1948 is increasing by £600 to £10,600, which will put an extra £120 in many basic rate taxpayers' pockets over the course of the tax year.
The allowance will increase to £10,800 in 2016/17 and £11,000 the following year.
Higher rate taxpayers also benefit, with the point at which 40% income tax is paid increasing by £315 to £42,700 in 2016/17 and by £600 up to £43,300 in 2017/18.
Also, the marriage allowance, which starts this April and allows married couples and those in a civil partnership to transfer £1,000 of their personal allowance to their partner, will rise to £1,100 in April 2016, making it feasible for some couples to save a little more on tax.
Other changes that may make you feel better off…
- Freedom to cash in annuities
In line with the pension freedoms being introduced this April, the Chancellor announced that anyone who already has an annuity will be able to sell it for a cash lump sum without being hit with a hefty 55% tax bill.
Selling an annuity is already possible, but you're expected to pay at least 55% tax on it. From April 2016, you'll only have to pay tax at your marginal rate of income tax - either 0%, 20%, 40% or 45%.
As well as replacing the annual tax return with an automatically uploaded digital tax account, the Budget brought a smile to many faces by freezing or cutting tax on some of our more regular expenses.
As well as a penny off a pint, the chancellor announced a 2% cut in duty for spirits and cider and a freeze on duty on wine. He also cancelled the fuel duty increase that was scheduled for September, helping motorists to fill up for less.
Find out more
For more information on this year's Budget announcements, please visit Gov.UK Budget 2015 some of the things we've announced and The Money Advice Service Budget 2015 - What you need to know.
Tax rules may change in the future and depend on individual circumstances.
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