Despite months of speculation, the Chancellor did not announce radical changes reducing tax relief on pension contributions for higher earners in his eighth Budget speech.
Instead, his plans included several measures to support investors and long-term savers. The standard ISA rate will be increased to £20,000 per year from April 2017 – up from £15,240.
At the same time, individuals under 40 can save up to £4,000 per year under a new ‘Lifetime ISA’. Every £4 saved will be matched by £1 from the government, up to the age of 50. The savings can be withdrawn tax-free if used towards a deposit on a first home worth up to £450,000 or it they remain in the account until after the holder’s 60th birthday.
The money can be withdrawn at any other stage but the government bonus, and any interest or growth on this, will be lost. There is also a five per cent charge for doing so.
Capital Gains Tax due on investments will be cut from 28 per cent to 20 per cent for higher rate tax payers and from 18 per cent down to 10 per cent for basic rate tax payers from this April.
Note that this does not apply to the sale of second homes or buy-to-let properties – another blow for landlords.
George Osborne also granted a welcome change to tax bands – the threshold at which people pay 40 per cent income tax will rise from £42,385 to £45,000 in April 2017. The tax-free personal allowance will rise from £11,000 to £11,500 next year.