Budget comment: Lifetime Isa
Comment from Adrian Walker, Retirement Planning Expert at Old Mutual Wealth.
“The Lifetime Isa is a gimmick that will only appeal to younger savers looking for help getting on the housing ladder. Very few people will use a Lifetime Isa to save for old-age and pensions are still the best retirement savings vehicle.
“The £1 bonus for every £4 is parity with the basic rate relief you currently receive on a pension, but crucially without employer contributions. Younger savers will also have to place faith in future governments not to renege on the promise of a bonus at age 60.
“The link with retirement savings indicated in George Osborne’s Budget speech is not reflected in the detail of the policy proposal. Of greater concern is whether the Lifetime Isa is a precursor to either a 20pc flat rate of pension tax relief or the pension-Isa.
“If government finances deteriorate further, the Chancellor may be tempted to extend its reach, allowing Government to slash pension tax relief or benefit from income tax on pension contributions upfront. It could be a prototype for the pension system of the future.”
Budget comment: Chancellor delivers another blow to buy to let
Section 1.171 of the Budget states that: “From 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%. There will be an 8 percentage point surcharge on these new rates for carried interest and for gains on residential property. This will ensure that CGT provides an incentive to invest in companies over property.”
Section 1.126 states: ‘…there will be no exemption from the higher rates (from stamp duty) for significant investors, and the higher rates will apply equally to purchases by individuals and corporate investors.
Comment from Rachael Griffin, financial planning expert:
“The Chancellor has today delivered another dent in the appeal of buy-to-let. A carve-out for second homes means that capital gains on buy-to-let will still be taxed at 28%. This latest blow sees the Chancellor make other forms of investment more attractive, in a hope it will ‘provide an incentive to invest in companies over property’.
“Today’s Budget also targets property investors with larger investment portfolios and corporate investors, bringing the rules in line with those that apply to small landlords. While there is little detail on the proposals at this stage, it suggests the Government will clamp down on investors hoping to get around the additional stamp duty charges.
“There is some good news for those that buy a new house before they can sell their existing home, however. Those people may have to pay additional stamp duty as they will temporarily own more than one home. But individuals caught in this situation with now have three years to recover overpaid tax.
“The change in CGT rates could also lead to a rise in the popularity of growth stocks over income stock. The surprise cut in CGT dramatically widens the gap between CGT and income tax rates. We could now see many people reconsider the investments they are holding, with many being lured toward growth stocks, which pay little income, but could grow in value.”
Budget comment: tax boost could help kick start savings
Comment from Rachael Griffin, financial planning expert at Old Mutual Wealth:
“Increases in the personal allowance will benefit all workers, while raising the 40p income tax threshold will be seen as a tax boost for middle-England.
“The resulting jump in take home pay will be welcome but it is important to remember this need not be seen as a reason to go out and spend the extra money in your pay packet.
“Much more work needs to be done to stimulate a positive savings culture in the UK. Today’s increase to the annual ISA allowance, the £1000 personal savings allowance and the recently unveiled help to save and lifetime Isa vehicles are designed to encourage long term saving.
“Thinking about taking some of the income tax savings from today’s Budget and investing in a long-term savings vehicle would be a smart move for the large number of UK households without significant rainy day savings.”