George Osborne delivered a host of announcements which will affect the nation’s finances in his Budget speech.
The Chancellor announced a new deal for savers whereby the first £1,000 of interest will be tax-free for 20% taxpayers (£500 for 40% taxpayers) from April 2016.
Other initiatives announced include a further increase in the tax-free personal allowance, a reduction in the lifetime pension-saving limit and a commitment to allow those with annuities to trade them in without a high tax penalty.
Here, we run through the key announcements, explaining the impact they’ll have on working taxpayers, couples approaching retirement and those who already claim their pension.
How does Budget 2015 affect you?
Working couple, both aged 55
Mr & Mrs Smith are both 40% taxpayers. Under the new tax thresholds, being introduced this April, less of their salary will go to HMRC.
In 2016-17, they will benefit from the new personal savings allowance which lets them receive up to £500 each in interest before paying any tax on this.
From this autumn, they will be able to withdraw their Isa savings without it affecting their annual allowance, which rises to £15,240 in 2015-16.
Newly retired couple, both aged 66
Mr & Mrs Jones are newly retired and yet to draw any funds from their pension pots. From April 2015, they will have a new range of income options for their pensions.
The government will offer them a pensions guidance session called Pension Wise to help them decide on the best option.
In 2015-16, provided they are not higher-rate or additional-rate taxpayers, they can take advantage of the new ‘transferable allowance’ rules to pass £1,060 of unused personal allowance to each other, which would save tax if either has too little income to use their whole allowance.
If one of them dies, their Isa allowances will pass to the surviving spouse tax-free.
Retired widow, aged 75
Mrs Davis receives an income of £11,500 from her annuity and the state pension, as well as income of £3,000 from interest on her savings.
She’ll have less tax to pay on her pension income, as the personal allowance for 2015-16 will rise to £10,600.
During 2015-16, she’ll have no tax to pay on the savings interest she receives either. This is because it falls within the £5,000 nil-rate band for savings income.
From April 2016, she may have the option of selling her annuity for a lump sum without having to pay a tax penalty.
Budget 2015: the key announcements
In an unexpected move, Mr Osborne expanded the tax-free savings band to include the first £1,000 of interest for 20% taxpayers, and the first £500 of interest for 40% taxpayers, from April 2016. Those who pay tax at 45% are excluded.
The Chancellor said that 17 million savers would no longer pay tax on their savings interest as a result of this measure.
Find out more: Budget 2015: Savings – more information on the personal savings allowance
Help to Buy Isa
Another savings initiative is a new Help to Buy Isa which will become available from Autumn 2015. Homebuyers can save up to £200 a month in the new account. If you save £12,000, the government contribution will boost this to £15,000.
Find our more: Budget 2015: Help to Buy Isa, – how this product will work
Mr Osborne confirmed that five million current annuity holders will be allowed to trade them in for a lump sum without a tax penalty from April 2016.
The move will be popular with those who feel trapped in a poor-value annuity, but Which? has warned that adequate safeguards are essential to ensure that pensioners are not ripped off if they decide to sell.
Find out more: Budget 2015: Pensions – see how these changes could affect your retirement
Personal allowance increase
The amount of income you can keep before paying any tax will continue to rise after today’s Budget. Personal allowance is due to increase to £10,600 in April this year, and is now set to climb to £10,800 in 2016-17 and to £11,000 in 2017-18.
Higher rate tax-threshold rises
Mr Osborne announced that the basic-rate tax limit will rise to £31,900 in 2016-17, so that only those with incomes above £42,700 pay 40% tax. In 2017-18 the 40% tax threshold is due to rise again to £43,300.
National Insurance changes
Class 2 National Insurance, which is currently paid at the flat rate of £2.80 per week by the self-employed, is due to be abolished in 2016. Instead, the rules surrounding Class 4 contributions will be revised. Other National Insurance rates remain unchanged.
Find out more: Budget 2015: Tax rates and allowances – a round-up of the changes
Pension limit cut
The Chancellor has reduced the lifetime-contribution limit for private pensions from £1.25m to £1m from April 2016, but will keep the annual-contribution limit at the current £40,000.
The rate of tax relief on contributions below the limit remains unchanged.
Duty rates fall
As in previous Budgets, Mr Osborne has cut the price of beer, by 1p per pint, with a reduction in duty. He has also frozen duty on fuel.
Tax returns abolished
The Chancellor has committed to a major overhaul the current system of self-assessment tax – whereby more than 10 million people submit a detailed return each year. By 2020 this information should be gathered automatically.
Find out more: Budget 2015: Tax returns – the government’s future plans for tax returns
What is the Budget?
The Budget is the government’s spending plans for the coming financial year, and how it plans to raise money from businesses and taxpayers.
It has the potential to change your finances, from the amount of income tax you pay to the price of a Cornish pasty. Find out more about the Budget in our video.