Savings and Investments
After the already significant changes to the savings landscape over the last 12 months, the Chancellor in his March 2016 budget further continued his desire to “Strengthen the Incentive to Save” for individuals.
A summary of the main changes are detailed below.
Lifetime Individual Savings Accounts (ISA)
- The new Lifetime ISA, available from April 2017, can be opened by individuals between the ages of 18 and 40, and allows them to save up to £4,000 each year and receive a government bonus of 25% on top, which works out as a maximum of up to £1,000 a year.This amount is within the £20,000 overall annual ISA allowance mentioned below*.
- The 25% government bonus will be paid at the end of each tax year on savings put in before the individuals 50th birthday.
- The Lifetime ISA can be used after an initial minimum holding period of 12 months, towards a deposit on a first home up to £450,000 anywhere across the country. The full amount including interest, growth and bonus can be used for this purpose.
- The previously announced Help to Buy ISA can be transferred into the Lifetime ISA in 2017.
- Although the 25% government contribution ceases to be added to any additional savings after the age of 50, the full amount can be accessed after the individuals 60th birthday completely tax free with any previous bonus, interest or growth being kept.
- Should an individual wish to withdraw their money at any time before they turn 60, they can do, however they will lose any government bonus and any interest or growth added to date.There will also be a 5% charge applied in doing so.
*The total amount that an individual can save into all ISAs will be increased from £15,240 to £20,000 per year from April 2017.
Help to Save
The government recognises that people on low wages find it difficult to save. They will therefore introduce a new Help to Save scheme which will be open to people who are in receipt of Universal Credit and have minimum weekly household earnings equivalent to 16 hours at the National Living Wage. The scheme will see the government give a 50% bonus of up to £50 per month into a Help to Save account after a saver has been saving for 2 years. This means that people can save up to £2,400 and receive a bonus of £1,200 from the government.
Despite rumours in the press during the build up to the March 2016 Budget about potential planned changes to pension’s tax relief and the payment of future tax free cash, the Chancellor decided, following consultation with several industry professionals and companies, to choose a path of stability and not to make any alterations to previous pension announcements. Therefore:
- From April 2016 the maximum amount that can be held at retirement within a pension and not be subject to a Lifetime Allowance charge will be reduced to £1,000,000.
- From April 2016 the maximum amount that can be invested into a pension “annual allowance” will remain at £40,000.
- From April 2016 the government will restrict the amount of tax relief available on pension contributions for those with incomes above £150,000 by tapering away their annual allowance to a minimum of £10,000.
- From 2016 the basic State Pension will rise to £119.30 per week and the single tier for the new State Pension will be £155.65.
David Allen Financial Services, as independent financial advisers, can help you make the most of our savings and investments and ensure your retirement planning makes the most of the tax advantages available. For an initial discussion to see how we can help, please contact one of our team on 01228 711888.