The first rule of the Budget is to “listen to what the chancellor says and list the things that were not mentioned”, says Anne Ashworth in The Times. “Only then will you have the answer to the question: ‘what’s in it for me, now and in the future?’” So, now the dust has settled on what many have branded “the boring Budget”, here’s how it will affect your finances.
From April 2018, you’ll pay less income tax, as the personal allowance – the amount we can all earn each year before we have to pay income tax – will rise to £11,850. The amount you can earn before you have to pay higher-rate income tax will also rise to £46,350. However, the 45% additional rate of income tax will continue to kick in when your annual earnings top £150,000. The capital-gains tax (CGT) allowance is also going up, by £400 to £11,700 from next April.
“This unheralded shift in the emphasis of tax breaks from income to gains should be taken into account by investors,” says Ian Cowie in The Sunday Times. With the dividend allowance falling, but CGT exemption rising, investors may be more incentivised to hunt for capital growth over income, reckons Cowie.
There was good news for people with sizeable pensions: in the new tax year the lifetime allowance will rise for the first time in eight years, albeit it’s only going up in line with inflation, from £1m to £1.03m.
Sticking with allowances, the inheritance tax allowance will be frozen at £325,000 (which is where it has remained since 2010) until at least 2019. But, as previously announced, the main residence nil rate band – that’s the new allowance for residential property inherited by a direct descendent – will increase from £100,000 to £125,000 in 2018. Finally, although the annual Isa allowance was held at £20,000 for adults, the Junior Isa allowance will go up to £4,260 in the new tax year.
Overall, the general consensus is that the Budget could have been worse – there were fears (as usual) that the chancellor would reduce tax relief on pensions, which thankfully didn’t happen. Savers should make sure they take full advantage of allowances, and just be glad the Budget wasn’t more dramatic.
A boon for first-time house buyers
The big news from last week’s Budget was that stamp duty has been abolished for first-time buyers paying up to £300,00 for their first home. Also, if you are buying a first property worth up to £500,000, then you’ll only pay stamp duty on the price over £300,000. The change is already in place, so even if you’ve exchanged but not completed, you’re still eligible. The exemption only applies to people who have never owned a property before, whether in the UK or abroad (this includes any property you have inherited). You also won’t be able to benefit from this if you buy a buy-to-let property, or if you’re buying with someone who owns or has owned a property before.
The stamp duty cut can save first-time buyers up to £5,000, the idea being that they will put this money towards a deposit, get a smaller mortgage and hand over less interest to banks. Of course, it’s quite likely the cut will instead lead to a rise in property prices, offsetting any savings made, as first-time buyers are able to bid just that little bit more for their starter homes. The Office for Budget Responsibility reckons house prices will rise by 0.3% over the next five years as a direct result of the cut.
In the news this week…
• If you have school-age children and usually wait until after Christmas to bag a bargain summer holiday in January, my advice is, “don’t”, says Nick Trend in The Daily Telegraph. There is always a “sharp uptick” in holiday searches from Boxing Day onwards, and the competition for cheap flights and villas will only get worse.
As for the bargain aspect, the January promotion is more of an “advertising splurge” than a series of “unmissable discounts”, and perks such as free child places and low deposits are often available now. Midweek departures are nearly always cheaper, as is the last week of August, and since France, Spain and Portugal not only have more flights from Britain but also more holiday accommodation, that is where your best chance of value lies.
• Most customers with mortgages linked to the Bank of England base rate will have been expecting their monthly repayments to rise in line with the recent 0.25% rise, says Ali Hussain in The Sunday Times. Not if you’ve been overpaying.
While Hussain’s mortgage rate did rise from 2.25% to 2.5%, because he has been overpaying by £300 a month, the amount he is contractually obliged to pay fell from £420 to £399. If he carries on overpaying and the Bank rate doesn’t change, he would pay off his mortgage seven years shy of the original 25-year term, and save around £10,000 in interest charges. You can use MoneySavingExpert’s online calculator to work out your own figures.
• If you’re about to stock up on charity Christmas cards, you may want to find out how much the retailer is planning to pass on to good causes, reports The Sunday Times. Sainsbury’s donates just 25p of its £2.50 charity cards to Comic Relief and the Royal British Legion, and it’s not alone. Aldi is more generous, giving 50p of its £1.99 packs to the Teenage Cancer Trust.
Some retailers give a lump sum to charity, regardless of how many cards they sell: M&S is donating an impressive £350,000 to Macmillan and Breast Cancer Now. A better option may be to buy direct from a charity or from an outfit like Cards for Good Causes, which supports over 250 charities and “hands over at least 70p in the £1”.