Budget  

Budget highlights need to maximise allowances

Adrian Lowcock

As has been the tendency in recent years, many of the major announcements were leaked ahead of today's speech and there weren’t many surprises in Rishi Sunak’s Budget.

The chancellor has focused on protecting jobs and livelihoods and that continued to be a priority, and the extension of the furlough scheme until September is set to help achieve this goal.

He has taken the opportunity to raise new revenue by freezing various allowance thresholds. These don’t have an upfront impact on people’s finances but instead take away benefits they would have accrued down the line.

The lifetime allowance has been a controversial policy from the outset and freezing the allowance doesn’t impact people today, but it will have a huge impact on people's retirement plans, especially if inflation returns in a meaningful way.

The CGT tax-free allowance has also been frozen. This is a tax that affects the sale of a wide range of investments, from property to shares, to cryptocurrencies such as bitcoin.

Freezing allowances discourages people from using pensions for their retirement as well as punishing those who have done the right thing and saved and invested wisely for their future.

This is a passive approach to raising more taxes but fortunately savers and investors can do something about it, by maximising their pension and Isa allowances.

Pension contributions give income tax relief, so people can reduce the tax they pay by putting more in a pension.

On top of this, Isas allow you to grow your savings and investments tax-free and have the additional benefit that any income taken from them doesn’t attract tax either. If you have gains now it makes sense to use your annual allowance while it is available.

Don’t forget it is also possible to move gains over to your spouse and they can use their allowance as well.

Budgets are full of headlines but is often difficult to pick out major investment themes from them as the announcements are often repeating previous headlines or the sums involved don’t make huge differences.

Today's Budget focused on the struggling sectors in the economy and that should provide some support for consumer confidence and, as a result, to the economy.

The announcement to raise the tax relief on qualifying business investment should provide an opportunity for companies to invest and support economic growth longer term.

The extension of the stamp duty holiday will also be a welcome relief to many and along with the government backed 95 per cent mortgages the UK housing market and property prices is once again being supported by the tax payer, which should be good for housebuilders. 

There were once again plans to support investment in green initiatives and digital, but how these pass through the economy and into investment ideas is not yet clear.

Adrian Lowcock is head of personal investing at Willis Owen