The Chancellor, George Osborne, delivered his budget statement for 2016 yesterday with an emphasis on savings and retirement. The headline announcement saw the introduction of a new tax-efficient savings product for consumers, one that closely resembles the flexible retirement ISA we have called on the Government to create.
Here’s our summary of the key changes for savers:
From April 2017, under 40s will be able to save up to £4,000 per year in the Government’s new savings scheme, the ‘Lifetime ISA’. Those who save into this ISA will receive a Government top up of £1 for every £4 contributed until they reach 50.
When withdrawn, the cash will be free from tax, provided certain terms are met. Only those who use the ISA to buy a house or for retirement, however, will get the full value of their savings as well as the Government bonus. On the other hand, those who have already taken out a Help to Buy ISA will be able to transfer their savings into a Lifetime ISA.
The Chancellor stated that the scheme would benefit those younger workers who receive poorer pension contributions.
David Harrison, True Potential’s Managing Partner, said: “ISAs are the key to closing the Savings Gap and turbo-charging them is a huge step in the right direction. We called for a top-up and a higher annual limit and the Chancellor has delivered both. This is excellent news and will change the way the nation saves for the better.”
Annual ISA Allowance to Rise
From April 2017, the tax-free ISA limit will increase from £15,240 to £20,000, including the new Lifetime ISA.
Capital Gains Tax Reduced
George Osbourne announced the cut of Capital Gains Tax from 28% to 20% which will “put rocket boosters on the backs of enterprise and productive investment”, the Chancellor told MPs. The basic rate of Capital Gains Tax will also fall from 18% to 10% on 6th April.
We are pleased to see that the Chancellor is in tune with our vision of a Retirement ISA and introduced the Lifetime ISA to help thousands save for their future. This, along with the newly increased ISA limit, will help facilitate an economy that is more aware of the need to save and invest for their future.
This article is based on True Potential LLP’s interpretation of the 2016 Budget Statement published on 16th March 2016. It is a broad summary and cannot cover every nuance, you should not take or refrain from taking any action based solely on this article.