InvestmentsMar 19 2015

10 key takeaways from the final pre-election Budget

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
10 key takeaways from the final pre-election Budget

Now the whirlwind news cycle and machine gun rattle of stories on the key details of yesterday’s (18 March) Budget is beginning to give way to measured response, FTAdviser takes a look at the headline themes that came out of George Osborne’s last fiscal package before the election.

1. Brace of new Isas.

Osborne hailed a quartet of measures to continue the self-proclaimed “savings revolution” that started with the measures to boost Isas and liberate pensions this time last year. Chief among them was a couple of new Isa products: a “fully flexible Isa” and a “Help to Buy Isa”.

The Help to Buy Isa will give first time buyers that save up to £200 a month towards their first home an uplift of £50 within the tax-relieved environment. A total of £3,000 can be claimed from the government, which would boost £12,000 of tax-sheltered savings into a £15,000 deposit.

Estate agents immediately reacted that the account may still miss the mark, as rising property prices mean there are still a lack of affordable homes for those trying to get on the ladder.

The Flexible Isa gives savers freedom to take money out and put it back in later in the year, without losing any of their tax-free entitlement. A new range of investments will also be allowed to be housed in the account, including listed bonds issued by co-ops.

Some may raise questions over a product to encourage saving that has the effect of giving freedom to spend more freely, but it is conceptually in line with the ‘trust’ argument for opening access to tax-relieved savings offered under pension freedoms.

2. Savings tax (mostly) abolished.

Another other major thrust of the savings revolution - and the final flourish to the speech - was the effective abolition on the tax on savings for the vast majority of savers.

In practice this is a new personal savings allowance which lifts the first £1,000 of income from a non-Isa account out of the marginal rate taxes that currently apply. Higher rate taxpayers will benefit from a lower rate of £500.

Mr Osborne said that this will mean 17m people will see the tax on their savings not just cut, but abolished. “At a stroke we create tax free banking for almost the entire population.”

3. Annuity for cash plans face obstacles.

Finally among these headline announcements, Mr Osborne confirmed an already-announced consultation on the re-selling of existing annuity contracts, while the document itself was published on the Treasury website alongside the Budget papers.

Consumer took the news as a green light to call their providers and advisers to find out about their ability to cash in and access next month’s freedoms. Someone on a BBC News phone-in last night even asked when they would be able to get their hands on the cash.

Delving into the actual consultation paper revealed the government is well aware that safeguards will be required to stop annuitants losing out - most likely in the form of independent financial advice - while some suggest the problem of calculating value could halt the plans in their tracks.

4. Lifetime allowance cut raises hackles.

Tax cuts have to be paid for somehow - and alongside the boost from improved government borrowing figures (of which more below), the rub came in the form of a cut to the pensions lifetime allowance.

As previously reported, the Budget brought a cut in the lifetime allowance for pensions tax relieved funds from £1.25m to £1m from 6 April 2016. Mr Osborne said that this will save around £600m a year, with fewer than 4 per cent of pension savers currently approaching retirement affected.

It’ll take the steam out of some of Labour’s plan to raid tax relief, but doesn’t play well given the apparent focus on saving. A minor concession was offered in the surprise announcement that from 2018 the lifetime allowance for pensions tax relief will be indexed.

5. Chancellor eases austerity.

For our national press colleagues this was the big headline: the ‘austerity’ chancellor quietly eased the restrictions being placed on the public purse, as a previously pledged £23bn surplus by the end of the next parliament was recast as a £7bn surplus.

Moreover, £13bn of the amount being used to pay down debts is coming from accelerated asset sales. It has allowed the chancellor to pitch spending as a proportion of GDP dropping to levels seen in the year 2000 under Labour, not the 1930s as was claimed after the Autumn Statement.

6. Personal tax free allowance pushed higher.

On general taxation, the chancellor toasted the coalition’s efforts in almost doubling the personal tax-free allowance from £6,500 when they came into power, as he confirmed this would increase to £10,800 next year and to £11,000 the year after.

He also confirmed that higher rate 40 per cent income tax threshold would rise faster than inflation. Calls from many quarters to mirror moves to these limits in the thresholds for National Insurance, however, went unheeded.

7. Tax will be even less taxing.

As trailed on the morning of the Budget, the chancellor stated that annual tax returns are to be replaced by digital tax accounts that will work just like an online bank account.

Given how well previous government technology roll-outs have gone, this is sure to be a rip-roaring success.

8. Hot air around tax avoidance hardline.

Mr Osborne also took the opportunity to act as enforcer ahead of the election, making heavy work of the various measures to recoup more money from taxes that might have been dodged in previous years.

The Budget brought new measures forecast to raise £3.1bn in tax avoidance, including by tackling abuse of an inheritance tax loophole through the use of ‘deeds of variation’.

The full Treasury document explained that legislation will provide new rules about adding property to trusts on the same day as a purchase, to target inheritance tax avoidance through the use of multiple trusts.

“Let the message go out: this country’s tolerance for those who will not pay their fair share of taxes has come to an end,” he boomed, while completely avoiding his administration’s lack of clampdown on non-doms and the cushy business investment tax relief they’ve been afforded.

9. VCTs and EIS got a look in.

The Budget also included new rules requiring companies being invested in by venture capital trusts or enterprise investment schemes “must be less than 12 years old when receiving their first EIS or VCT investment”.

Mr Osborne added that there would be an exception where “the investment will lead to a substantial change in the company’s activity”. He said the change was needed to comply with European state aid rules.

This was seen as a blow for the high-flying tax-incentivised investment industry.

10. More money for Pension Wise.

In the detail of the Budget document was a pledge to set aside £19.5m to cover the costs of a greater than expected ‘surge’ in demand for the government’s guidance service, Pension Wise, among other services.

It was all slightly confused, with the government later confirming to FTAdviser that some of this money will come from a levy, but that the costs of that had already been included in the original £35m levy proposal for financial services firms, of which £4.2m will be met by advisers.

So, not really ‘additional’ funding of £19.5m then? For advisers the more worrying issue will be if this is a portent of the underestimated cost of funding guidance, which could see future levies set higher.

peter.walker@ft.com, ashley.wassall@ft.com