Today’s Budget sees a rise in the amount you can earn before you pay tax, and an increase in the threshold for paying higher-rate tax.
There’s also good news for Isa savers and some of those who pay capital gains tax (CGT) – which is due if you make substantial profits from selling shares, possessions or property. But the more generous tax rate announced today won’t apply if the tax is due on the sale of a second home.
Find out more: The Which? Budget 2016 Hub – we round up all the key announcements
Isa limit rises in 2017
A new personal savings allowance starts in April 2016 which will allow savers to earn interest of up to £1,000 (£500 for higher rate taxpayers) without paying any tax. However, the Isa limit for 2016-17 has been frozen at the current level of £15,240.
Today the Chancellor announced the Isa limit will rise significantly in 2017- to £20,000 – rewarding investors who hold stocks and shares Isas as well as those who save in a cash Isa.
Mr Osborne also announced a new ‘Lifetime Isa’, for those aged under 40. This will combine pension and mortgage saving in a single account.
Capital gains tax cut in 2016
The Chancellor announced a substantial cut in capital gains tax, from April 2016- with the top rate falling from 28% to 20% and the basic rate from 18% to 10%.
However, gains from the sale of a residential property (second home) are excluded and existing rates will still apply to this.
Higher rate (40%) tax threshold set at £45,000
The Chancellor also said he would eventually raise the threshold at which people pay the higher (40%) rate of tax to £50,000.
The threshold is currently £43,000; from April 2017, it will rise to £45,000.
Within the higher-rate tax figure, an initial slice of income is tax free, due to the personal allowance. In 2017, this will be £11,500; above this, the next £33,500 is taxed at the 20%, basic rate.
Personal allowance rises to £11,500 in 2017
Raising the personal allowance has been a feature of George Osborne’s Budgets since he first became Chancellor in 2010. The limit then stood at £6,475.
In his Budget speech today, he said: ‘In two weeks’ time it will rise to £11,000. We committed that it would reach £12,500 by the end of this Parliament. And today we take a major step towards that goal’.
Mr Osborne said the 2017 increase meant 1.3 million of the lowest paid would be taken out of tax altogether.
Find out more: Tax rates and allowances – see how much tax-free income you’re entitled to