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Budget 2016: the main highlights

Which? rounds up the key announcements

George osborne

George Osborne has delivered a host of announcements which will affect the nation’s finances in his 2016 Budget speech. 

The Chancellor introduced a new Lifetime Isa, in which people under 40 can claim a government top-up when saving for a house or for their retirement.    

He also announced a significant cut in capital gains tax rates and a rise in income tax bands.  

Here, we round up the key announcements, explaining how they might affect you.

Find out more: The Which? Budget 2016 hub – the latest news as it happens

Lifetime Isas

The Lifetime Isa will be introduced in April 2017. 

Under-40s can save up to £4,000 a year in the account, and will receive a 25% top-up from the government, either when they buy their first house or when they turn 60. These Isas will be flexible so that the funds can be accessed and replaced at any time. 

Lifetime Isas for first-time buyers

Your government bonus could be put towards a deposit on a first home worth up to £450,000 across the country. Accounts are limited to one per person, rather than one per property, so two first-time buyers could combine their bonus when buying together. 

Those who have a Help to Buy Isa can transfer funds into a Lifetime Isa without losing any of the associated benefits.  

Lifetime Isas for retirement saving

You could also use the government top-up to help save for your retirement by withdrawing all your savings tax-free on your 60th birthday. 

You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge.

The annual Isa allowance will remain at £15,240 in 2016-17, but it will rise significantly to £20,000 from April 2017.  

Find out more: Budget 2016: Lifetime Isas – the finer details explained

Capital gains tax cut

The Chancellor announced that the top rate of capital gains tax will drop from 28% to 20% in April 2016. The charge for basic-rate taxpayers will also fall from 18% to 10%.

However, these changes will not apply to residential properties. The increased stamp duty rates on buy-to-let properties were also confirmed. It was expected that investors with 15+ properties would be exempt, but it was revealed these new rates will apply to all buy-to-let investors.    

Help To Save scheme

The Chancellor confirmed the introduction of a new ‘Help To Save’ scheme, which encourages those on low incomes to save more of their money.  

The scheme is open to those are who in work and in receipt of Universal Credit or Working Tax Credit. 

Those who qualify can save up to £50 a month in a ‘Help To Save’ regular savings account and receive a 50% government top-up (worth up to £600) after two years. 

They can then choose to continue saving for another two years and receive another top-up worth up to £600.

Insurance premium tax rises again

The Chancellor increased the rate of insurance premium tax for the second time in less than a year. 

Mr Osborne raised this tax from 6% to 9.5% in last year’s Summer Budget, and confirmed today it will rise to 10% in April.  

This tax rise is expected to hit consumers in the form of higher premiums. 

Find out more: Budget 2016: insurance premium tax – see our analysis 

Other tax changes

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 £11,000 in April this year, and will climb to £11,500 in 2017-18, which the Chancellor says will take another 1.3 million out of paying income tax altogether.  

The basic-rate tax limit will rise to £32,000 in 2016-17, so that only those with incomes above £43,000 pay 40% tax. In 2017-18, this 40% tax threshold is due to rise again to £45,000.

The Chancellor froze fuel duty, beer duty, whisky duty and cider duty. All other excise duties will rise with inflation. A new sugar levy for the soft drinks industry will also be introduced in 2018.      

New tax breaks on small-time online trading and on income from renting out your home while on holiday – worth £1,000 each – were also introduced. 

Find out more: Budget 2016: tax changes – all you need to know

Government responds to Which? calls for pensions dashboard

The government has responded to our calls for a pensions dashboard that makes it easier to plan for their retirement.

Its Budget document includes a pledge to ensure the industry designs, funds and launches a dashboard by 2019.

It references Which? research showing that over a third of people approaching retirement find it difficult to keep track of their pension pots.

Money Advice Service to close

The government also announced it will restructure the delivery of its public financial guidance. The Money Advice Service (MAS) will close and be replaced by a smaller guidance body, while The Pensions Advisory Service (TPAS) and Pension Wise are set to merge.

Find out more: Money Advice Service to close – how the new services will work

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