The 2014 Budget speech has been delivered, with chancellor George Osborne declaring: "If you're a maker, a doer or a saver: this Budget is for you." But what exactly does that mean for your bank balance?
As many predicted, the personal allowance on income tax will be raised to £10,500. That means those earning under £100,000 will pay no tax on the first £10,500 from April 2015, up from £10,000 for 2013/14. For basic rate taxpayers, that will amount to additional savings of £100 per year.
Unsurprisingly, those with higher incomes received a boost too. The threshold for the 40% tax rate was raised to £41,865, and will rise another 1% to £42,285 next year. Earners above the threshold will see savings of £83 this year, and £84 next year.
The budget surprised most commentators with the scale and scope of the changes made to savings, beginning with the abolition of the 10p starting rate for income from savings below £2,790.
Individual Savings Accounts (ISA) also got an overhaul. Cash and stocks ISAs were merged to make flexible ISAs and simplify savings. And the annual tax-free ISA limit will be increased to £15,000 per person per year from 1 July. Currently cash ISAs limit savers to £5,760 per year, and stocks ISAs are limited to £11,520.
So if cash ISA savers took advantage of the increase and invested the full amount in an account with 1.5% interest, that will amount to £138.60 interest per year. Although if you were already earning that in a savings account, you'd just save the £27.72 in tax: but every little helps.
To encourage more cash to flow into pensions, pensioners will no longer be required to purchase an annuity once their defined contribution pension scheme matures. That means instead of having to buy into the plans, which pay a set amount each year, they can choose to take the money and invest it as they see fit.
The budget also took the tax burden away from accessing pension funds early. The punitive 55% tax has been removed, with withdrawals now taxed at the marginal rate (usually 20%). On a £10,000 withdrawal, that would mean a £3,500 saving.
The government is also creating a new 'pensioner bond' available to anyone over 65. These will be limited to £10,000 per person and offer interest rates of between 2.8% and 4%.
Certain costs of living were also addressed:
- The fuel duty rise for September has been cancelled, and instead the price will be frozen
- The unpopular alcohol duty escalator has been scrapped, and duty will now rise with inflation, except for cider, whisky and other spirits (which have had their cuties frozen), and beer duty, which was again cut by 1p per pint
- Following the news that bingo halls have been closing across the country, bingo duty has been halved to 10%
- The tobacco duty escalator will, however, continue to push duty up by 2% plus inflation, and has been extended to the next parliament
As with all big changes, exactly how it will impact you will depend on your spending and saving habits. You can keep track of your changing fortunes using Money Dashboard's free money management software, safe in the knowledge that you'll never have to pay a penny for it.
Posted by Marc Murphy, Marketing Manager at Money Dashboard.