By Andy Golding
Leaving the political mudslinging and hyperbole aside following the March Budget, what did it actually do for savers? On the face of it, it looks like good news, with a major lift for the ISA system or those seeking to keep more of their money out of the hands of Mr. Taxman. At the time of writing this I’m sure there will be more detail still to emerge, so it would make sense to keep a beady eye on the financial press.
Even so, what has been communicated clearly is that the ISA limit will gain a substantial uplift from £15,240 in the 2016/2017 tax year to £20,000 starting in April 2017. Not bad for one of the most popular savings vehicles and for those to who wish to shelter their savings from HMRC.
As usual, those of us in financial services brace ourselves for a surprise to be announced in the budget. This year’s winner goes to the launch of the new Lifetime ISA to be introduced from April 2017 for the under 40’s. With an allowance of £4,000, which will form part of the £20,000 total ISA allowance, investors will receive a £1 government top up for each £4 saved, to be added at the end of each tax year. Investors will be able to withdraw their capital tax-free to buy for their first house (up to a value of £450,000), or after the age of 60. As always, however, there is a catch. If you wish to withdraw at any time from the Lifetime ISA you will lose your government top up and pay a 5% charge on top. Interestingly, and after much debate, much of it in the press, the Chancellor decided to leave pension reforms alone in this budget.
One thing to remember is that the new personal savings allowance (PSA) is available from April 6. This allows savers earn £1,000 interest (for basic-rate taxpayers) or £500 (higher-rate) tax free per year. Under the PSA, returns on non-ISA savings within the tax-free limit look to be greater than the returns offered by ISA, because rates paid are generally higher at the moment. That doesn’t mean that ISAs aren’t good options however.
As with all financial investments, I can’t emphasise enough the importance of seeking financial advice. Over the last three or more years we have seen a plethora of new savings and investment options announced in the budget. You can be forgiven for being bewildered by the choice available; even worse though, you could be left without access to funds you thought you had. Making an informed choice is always key.