Yesterday's Autumn Statement has been widely applauded by the industry and consumers alike, with there being several announcements that will make a significant difference to the finances of many Brits. But, just what does the Statement mean, and how will the announcements benefit you? Let's take a look at the changes that are most likely to affect your budget…
Stamp duty reforms
Arguably, this was the biggest – and one of the most beneficial – announcements of them all. Stamp duty has been widely criticised for taking a 'cliff edge' approach to tax payments, meaning that if the value of your new home passed a certain arbitrary limit, you'd pay a higher rate of tax on the full amount – potentially leaving you paying thousands more than if the property cost just a few pounds less.
Happily, this has now been changed to a more proportionate system. From now on, there'll be no stamp duty to pay on the first £125,000 of any property, and then 2% will be paid on the portion up to £250,000 – rather than a flat rate of 1% being paid on the full price of the property. Similarly, 5% will be paid up to £925,000, then 10% up to £1.5m, and an increased rate of 12% will be paid on everything above that.
The Government predicts that this will benefit some 98% of future homebuyers, many of whom were disadvantaged under the previous system and ended up paying huge amounts of additional tax. And, according to calculations from the Council of Mortgage Lenders (CML), the new rules will only negatively affect around 1.5% of all homebuyers, who will have to pay more tax on the country's most expensive properties.
"This fundamental reform has been a long time coming," said Paul Smee, director general of the CML, "but better late than never. Although there are losers as well as winners, the vast majority of mortgaged transactions will benefit from lower tax as a result of this move."
It could mean the typical homebuyer will save thousands of pounds, and as moving home already comes with a huge array of additional expenses – including things like moving costs, legal fees and remortgaging costs – this could make a huge difference.
In a surprise but welcome move,ISA benefits can now be passed onto spouses or civil partners if the ISA-holder dies. This will be achieved through an additional ISA allowance, which the surviving partner will be able to use from 6 April 2015. This is a significant change from the current system, which states that if someone passes away, they can't pass their ISA onto their partner as part of their estate. This effectively means that a lot of people could have lost out on the tax advantages that such an account brings, even if they'd spent years saving the money together.
The new rules are already in effect, and mean that, from April, the surviving partner will be allowed to invest as much into their own ISA as their spouse used to have in theirs, in addition to their normal annual ISA limit. Incidentally, this tax-free allowance will also be increased to £15,240 in April, up from the current level of £15,000, and the second increase in a single year – meaning savers can benefit from even more tax-free returns as a result.
Rachel Springall, finance expert at Moneyfacts, commented: "Savers will be pleased by the surprising news that ISAs can now be passed onto spouses without losing the tax-free wrapper on death. The increase of the annual limit to £15,240 will not be sniffed at either, but savers still need to chase down the best deals to make the most of their money."
It's great news for savers as it means there's even more chance to benefit, potentially leaving you with even higher returns as a result – and you won't need to lose out financially should your partner pass away, either. But, as Rachel points out, it's vital you get the best deals so your money can work as hard as possible, so check out the top ISAs on the market to get the process started.
Changes to annuities
This one had already been talked about, but it was good to have it confirmed. The so-called 'death tax' on annuities will be abolished, which means that people will be able to pass on their pension savings to their loved ones completely tax-free. Currently, a tax charge of 55% applies when an unused pension pot is passed on, but happily, that's no longer the case. It could make a huge amount of difference to the finances of beneficiaries, as it means they won't need to sacrifice over half the pot to the taxman.
There are other changes to the system, too, most notably that those with a joint life or guaranteed term annuity who die before the age of 75 will also be able to pass it on tax-free. Where no payments have been made prior to 6 April 2015, beneficiaries will be able to receive any future payments from the policy without paying tax, providing another welcome income boost and ensuring they're not penalised. The rules also state that if the annuitant dies after the age of 75, the beneficiary will pay their marginal rate of income tax on any payments, or alternatively, will be subject to a 45% tax charge if the funds are taken as a lump sum payment. From 2016/17, this will also change to lump sums being charged at the marginal rate of income tax.
All in all, it's good news for annuitants and their loved ones, as it means most beneficiaries won't lose out financially during an already difficult time. It's been largely welcomed by the industry and offers people another reason to consider annuities as a retirement income solution – consult our annuity planner to discuss the options.
Increased personal allowance
The tax-free personal allowance – the amount earned before income tax has to be paid – increases on an annual basis anyway, but the Chancellor announced that it would rise faster than had been predicted. It had initially been intended to rise to £10,500 in April, up from its current level of £10,000, but it'll now be increased further to a threshold of £10,600.
It may not seem like a huge jump, but according to the Government's calculations, this could result in an average income boost of £825 per year for the typical worker –that's definitely something to shout about – and it also means that 3.5m of the lowest-paid workers will be taken out of tax altogether. The threshold at which the higher rate of income tax is paid has been raised, too, meaning those on higher incomes will need to earn £42,385 (up from £41,865 currently) before they pay 40% tax.
So, just what will you do with that extra cash? Unfortunately, it could easily be absorbed by the household budget, but if you want to make it go as far as possible, it's a good idea to invest it. Check out the best savings deals, or even put it in a high interest current account to see just how far it can go.
All in all, the Statement has delivered a lot of good news for consumers, and could potentially leave you with more cash in your pocket – no matter what stage of life you're in. Of course, things like spending cuts (which weren't focused on too heavily) won't be so welcome, but in the meantime, you could enjoy a few financial benefits.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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