Today saw the Chancellor deliver a Budget that he hopes will set the economy on course for the run up to the next election and beyond. He decided that this was the right time to help some particular groups who have hitherto probably felt somewhat unloved.
He described it as a Budget for makers, doers and savers – it was certainly an interesting Budget.
He started out by delivering the normal raft of statistics that tell us that things have been somewhat better than expected – but that our economic problems are not yet behind us. Borrowing would be less than previously predicted and expected to show a small surplus in 2018/19. We were told that growth for the 2013 year at 1.8% was triple the original forecast. Growth for 2014, originally expected to be 1.8%, has been revised upwards to 2.7% although it would then fall slightly before increasing to 2.6% in 2016 and 2017.
The big news from the Budget was without doubt the announcements that will come in to the help pensioners and savers. For pensioners, from April 2015, there will be a radical shake up of the way they access their pensions, with the Government looking to 'trust' them with the money they have saved. These changes will allow them to take the normal 25% tax free lump sum, but then draw unlimited further sums paying tax at their marginal income tax rates. This is expected to make pensions a more popular savings method, with the fund growing tax free during the individual's working life. In the short term, however, it might also mean that some pensioners will take a higher income from their pension pots.
For savers there were a number of measures intended to help those reliant on savings that have seen their incomes hit particularly hard over the past few years. Mostly pensioners, this group will see the 10% tax rate on the first tranche of their savings income abolished altogether resulting in a tax refund if the banks have already deducted tax on the income.
The Chancellor increased the usefulness of ISAs (To be called NISAs) by extending the yearly limit to £15000 from 1st July 2014 and simplifying the rules considerably. On top of all of this, the Government will introduce a new pensioners bond that will pay commercially attractive rates of interest on one and three year bonds, giving pensioners what is likely to be a better rate of return on their savings.
There was also good news for businesses as he doubled the limit for the Annual Investment Allowance that gives 100% tax relief on capital investment up to £500,000. This relief will also be extended beyond next January (when it was due to be withdrawn) to the end of 2015. He also confirmed some reliefs, previously announced, that will help businesses namely the Business Rates relief worth £1,000 to many small high street businesses and the £2,000 credit against Employers’ National Insurance Contributions.
Finally, there was some cheer for bingo lovers everywhere; in a climate of closures of bingo halls across the country, the Chancellor announced that he would halve the duty which will hopefully secure the rest of these for the future.
Graham Poles, Partner and Head of Tax
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