Expat financial advice: Budget 2015
No “gimmicks or giveaways”?
So the UK Chancellor George Osborne has delivered his final Budget of this Government.
Regardless of your political leaning, it is hard to argue that the UK is not on a stronger footing now than it was, even just 12 months ago.
The Office for Budget Responsibility (OBR), an independent government department which, among other things, provides economic forecasts, supplied figures showing that at 2.6% the UK had the fastest annual growth among the G7 economies last year, and its strongest growth since 2007.
The Chancellor also cheerfully informed the packed Parliament that the OBR had revised up its growth forecasts for this year from 2.4% to 2.5% and for 2016 from 2.2% to 2.3%.
Employment figures were also strong, with the Chancellor informing us that it had reached its highest ever level at the end of 2014, with 30.9 million employed. This is more than 1 million above its pre-crisis peak, and up 1.85 million since the current government came to power.
But what does all this good news mean for you?
In his opening remarks – despite having to hand what was described as a £6bn “pre-election war chest” – Osborne said this was not going to be a Budget of “gimmicks and giveaways”. He did however manage to squeeze a few crowd pleasers in…(including an extra penny off beer, again).
Pension flexibility for existing annuitants – April 2016
The first major change is the extension of pension flexibility to those who have already purchased an annuity. This would bring existing annuitants into line with the freedom available on pensions from next month, as announced in last year's Budget. This is due to be introduced in April next year following industry consultation.
There are few details available on this at the moment, but if this is introduced, it could prove a very helpful option for planning one’s finances when already in retirement.
Many people have annuities which are paying them almost inconsequential amounts of money each month but , under current rules, they cannot access. If this new legislation were introduced, people would be able to encash the remaining amount and perhaps use it for something more worthwhile – a car perhaps or foreign holiday.
Tax free personal allowance has increased, again – April 2016 and 2017
To his credit, Osborne has increased the tax free allowance consistently throughout his time as Chancellor, taking it from below £10,000 to £10,600 (as of this April). He is now planning to increase the personal allowance to £10,800 in April 2016 and to £11,000 from April 2017. This will save a typical taxpayer around £905 per year by the 2017/2018 tax year.
Increase in the higher rate tax threshold
To ensure the benefis of an increased personal allowance are passed on to higher rate taxpayers, Osborne has also decided to increase, above inflation (for the first time), the point at which people start paying 40% tax. It will increase by £315 in 2016-2017 and by £600 in 2017 – 2018 taking it to £43,300.
As previously announced, the threshold will increase from this April to £42,385.
Personal savings allowance increase – April 2016
Osborne is also introducing a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) for the interest that people earn on savings.
A basic rate taxpayer who has a total income up to £42,700 a year will be eligible for the £1,000 tax-free savings allowance, while those earning from £42,701 to £150,000 will be eligible for a £500 tax-free savings allowance.
Increased ISA flexibility – April 2016
In keeping with Osborne’s theme of giving people more control over their own money, from April 2016 savers will be allowed to put money into and then withdraw cash from their ISA, without losing the tax benefit.
For example (based on the current ISA limit of £15,240), if someone were to have put in £10,000 then withdrawn £2,000, their remaining ISA allowance would currently remain at £5,240. However, from April next year the person would be able to re-pay £7,240, as long as a repayment is made within the tax year.
One takeaway – The lifetime allowance falls again
With all the good news, there always has to be a little bad. In this Budget it is once again the lifetime allowance on pension savings which is being targeted. From April 2016, the allowance is being reduced from the current £1.25m to £1m. Osborne predicts this will effect around 5% of people, although it is easier to fall into this category than you think, so best to speak to your financial adviser about this.
About Simon Danaher
Simon Danaher previously worked for AES International, in marketing and communications.