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The 2015 Budget and savers

Yesterday’s Budget contained very little on the Inheritance tax front, other than the announcement of a review into tax avoidance and Deeds of Variation, and the confirmation that the Government intends to press ahead on the changes to the taxation of relevant property trusts, but not in the Finance Bill to be published next week. You can see our comprehensive summary here of the new measures announced yesterday but in this blog we thought we would take a look at the measures for savers.

Firstly, it should be noted that these changes are not due to come into effect until the Autumn of this year or from 6 April 2016 and so won’t be in next week’s Finance Bill; given that there is to be an election in May in some ways they could be said to amount to pre-election pledges.

It was announced that the Government plans to introduce a Personal Savings Allowance for income tax from 6 April 2016. The allowance will be £1000 per annum for basic rate tax payers and £500 per annum for higher rate income tax payers. At the same time financial institutions will stop deducting tax at source from non-ISA savings interest. As it is anticipated that 95% of savers will benefit from the new allowance the remainder, who are likely to be higher rate tax payers, will presumably pay their tax liability on their savings income through the Self Assessment system.

ISAs will have an extended list of qualifying investments, and it will be possible to take money out of an ISA during the tax year and put it back in later in the same tax year without the replacement using any of the individual’s annual ISA allowance. In addition a new “Help to buy” ISA is to be introduced  in Autumn 2015 allowing those saving towards a first home to claim a 25% bonus on their savings, subject to a minimum bonus of £400 per person and a maximum of £3000, so £6000 in total if a couple are saving together. The house bought will have to have a maximum price of £450,000 in London or up to £250,000 outside of London. To ensure that the money is used for its intended purpose the bonus will be paid when the house purchase is made.

These measures must be welcome to first time buyers who have been struggling with high property prices, the requirement for large deposits and low interest rates on savings. It is questionable, however, whether this is sufficient action and whether more radical, strategic action needs to be taken by whichever government is in power after May to deal with the problems of the housing market and access to it.