“From austerity to prosperity”?

We all knew that George Osborne’s last Budget in March would have two eyes firmly on the forthcoming general election.  But with polling day just around the corner, what does it mean to us, the tax payers (and voters)?

The Budget is the Chancellor’s major political platform of the year – even more so when his announcements are made weeks before the country goes to the polls.  So it was no surprise that the coalition government’s 2015 Budget managed to hail economic recovery and gloss over spending cuts.  But it also served up a raft of measures designed, among other things, to support savers and first-time house-buyers.

Changes for individuals

• ‘PersonalSavings Allowance’ that will enable basic-rate taxpayers to earn up to £1,000 each year in savings interest, free of tax.
• More flexibility for Individual Savings Accounts (ISAs) that will allow savers to withdraw money and replace it – in the same tax year – without forgoing any of their tax-free ISA allowance. At present, however, this provision will apply only to cash ISAs.
• ‘Help-to-buy’ ISA for first-time house-buyers: The government will add a bonus of 25% to money saved by house buyers for their deposit, to a maximum of £3,000 on £12,000-worth of savings. 
• Pensions annuity changes: From April 2016, pensioners who have already purchased an annuity will be able to sell that income to a third party in exchange for a lump sum that will be taxed at their marginal rate, instead of the “punitive” 55% rate.
• Lifetime Allowance for pension contributions to be cut: From April 2016 it will be reduced from £1.25m to £1m. 
• The personal tax-free allowance to go up: It will rise from £10,600 in 2014/15 to £10,800 in 2015/16 and to £11,000 in 2016/17.
• Higher-rate tax threshold to rise: It will go up from £42,385 to £43,300 by 2017/18.

What might change

• Deeds of variation: Schemes to avoid inheritance tax through deeds of variation will be reviewed.

Changes to economic planning

The Chancellor also signalled that – if he is still in control at the Treasury – he intends to end the squeeze on public spending earlier than expected.  From 2019/20, he plans to let public spending rise in line with economic growth. 

This upbeat note came about as a result of encouraging economic statistics, signalling that the UK economy may have turned a corner.  Factors that influenced his thinking include:

• Economic growth: The UK economy expanded more quickly than any other major advanced economy during 2014, registering growth of 2.6% (although this was still lower than the 3% growth forecast in December 2014).
• Improved forecasts: The Office for Budget Responsibility raised its forecast for economic growth to 2.5% in 2015 and 2.3% in 2016 (although its forecast for 2017 was cut to 2.3%).
• Reduced national debt: Debt as a share of GDP is falling more quickly than previously forecast.

Of course, which of these measures come to fruition will depend a lot on the outcome of the general election on 7 May.  I will keep you posted as to what the outcome means for you and your financial future!

FOR EXPERT FINANCIAL ADVICE:

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