The introduction of a personal savings allowance means 17m people will not pay any tax on their savings, George Osborne has said.
The chancellor said this move would take 95 per cent of taxpayers out of savings tax altogether in what he said would create “tax-free banking” for almost the entire population.
Changes announced yesterday to encourage saving have been welcomed by the industry but others have questioned the decision to leave high-earners out of the reforms.
The allowance will mean that from April 2016 the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers will be exempt from tax.
In addition the personal tax-free allowance will rise to £10,800 next year and then to £11,000 the year after.
Mr Osborne said this would leave the typical working taxpayer £900 a year better off.
Meanwhile, the threshold at which people pay the higher tax rate will rise above inflation to £43,300 by 2017/18.
The Conservative MP said: “We believe that work should pay – and families should keep more of the money they earn.
“We set ourselves the goal – even in difficult times – of raising that allowance to £10,000 by the end of the parliament.
“In two weeks’ time it will reach £10,600.”
Changes which Mr Osborne has already announced will mean that from April the Isa limit will increase from £15,000 to £15,240.
Mr Osborne also announced that the new transferable tax allowance for married couples will rise to £1,100.
To be eligible for the £1,000 a year personal savings allowance a person’s taxable income needs to be less than £42,700 a year.
Meanwhile to be eligible for the £500 tax-free personal savings allowance their taxable income will need to be between £42,701 and £150,000 a year.
David Dalton-Brown, director general of Tisa, said: “Today’s Budget is a stepping stone towards realigning the interests of savers, with the products and services offered by the industry.
“This will be the most effective way to re-build trust in retail financial services and build a more resilient society.”
Adviser view
Simon Blowey, director of financial planning Brewin Dolphin, said: “The personal savings allowance is a great headline-grabber but high-earners won’t benefit from it and to put that into context you have got to have £100,000 earning 1 per cent before the figures start to squeeze.
“I wonder whether it is going to make a huge amount of difference, particularly because of the low-rate environment we are in at the moment.”
