Yesterday's Budget had plenty of surprises in store for savers, with a raft of new measures aimed at offering more flexibility, better returns, and more help for those struggling to build that all-important house deposit. So, we thought we'd go over the key points to see what the Budget really means for savers.
As it stands, if you invest your full tax-free allowance in an ISA but then need to withdraw some of the cash, you can't put it back in at a later date. From the autumn, this is set to change – the Chancellor announced a "radically more flexible ISA", which means you'll be able to withdraw money from the account and put it back in later that year, without losing your tax-free entitlement!
It's a welcome move for savers as it means they won't be penalised if they need access to their own money: should you need to withdraw some cash, you can put it back in and still earn tax-free interest, which "lays to rest one of the key frustrations of ISA saving", said Sylvia Waycot, editor of Moneyfacts.co.uk.
If you don't have an ISA, the interest earned on any money kept in a traditional savings account is taxed at your nominal rate (20% for a basic rate taxpayer or 40% for higher earners). Happily, this too is set to change. "People have already paid tax once on their money when they earn it. They shouldn't have to pay tax a second time when they save it," said George Osborne, when he announced the launch of a personal savings allowance.
The allowance means that, from April next year, the first £1,000 of interest you earn on your savings (£500 for higher rate taxpayers) will be entirely tax-free! Unsurprisingly, the move has been applauded, as "we finally have one rule that gives all savers equal opportunities and addresses the unfairness of having to pay tax on money that has already had a share taken by the taxman," said Ms Waycot.
Essentially, the change could bring 95% of taxpayers out of savings tax altogether, said the Chancellor, with a savings pot needing to be seriously large before it attracts any interest. For example, savings of £100,000 kept in an account paying 1% will still only attract £1,000 in interest, so the clear majority of savers will be able to enjoy tax-free saving!
The final savings revelation was the launch of a Help to Buy ISA, offering a generous boost to first-time buyers looking to take that first step on the property ladder. Essentially, the Government is offering a 25% bonus on monies saved for the sole purpose of buying a home – for every £200 saved, the Government will top it up with £50 – and it'll work something like this.
The first-time buyer opens the ISA with a maximum deposit of £1,000, and can then make regular monthly deposits (max £200). Then, when the ISA holder buys their first home, the Government bonus is made available, with a maximum of £3,000 able to be earned on £12,000 of savings.
The bonus is available on all homes worth up to £250,000 (£450,000 in London), and savers will have access to their cash should they need. But, the bonus will only be made available for house purchase, so the scheme really does have the sole aim of helping people get on the ladder.
"Many young people have almost given up on the hope of owning their own home because the deposits are so high," said Sylvia Waycot. "This will be excellent news for this demographic, who will once again have the opportunity of getting on the housing ladder."
However, the move has garnered some criticism for encouraging more people to buy homes without solving the lack of supply, and there are fears it could further fuel the rise in house prices. But, on the whole, the scheme is again welcomed, with this definitely being a Budget for savers – and one that could ideally help more people reap the returns.
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