2016 Budget Initial Reaction
At face value, the Chancellor of the Exchequer’s 2016 Budget seems to be generous to investors and savers.
The most immediately apparent evidence of this is the introduction of a new ‘Lifetime ISA,’ which will become available to anybody under the age of 40 in April 2017. This particular product will allow savers to contribute up to £4,000 each year, topped up 25% by the Government. An individual’s savings will be freely accessible at any time (although the Government contribution element will not be) and if used as intended will be tax free upon withdrawal with the aim to helping younger people save for a house or toward their pension; seemingly taking inspiration from Singapore’s Central Provident Fund or the USA’s 401k.
For those over the age of 55, proposals have been put on the table to allow individuals to withdraw up to £500 from their defined contributions pensions to put toward the costs of seeking regulated financial advice. One could argue that it is leaving the planning quite late, but better late than never.
For other savers, increases in the annual ISA contribution limit to £20,000 from April next year are welcomed and potentially mark a wider acceptance of the important role ISAs can play in an individual’s overall pension planning arrangements.
Reductions of 8% to both rates of Capital Gains Tax potentially provide some relief to investors when they come into force in three weeks’ time, although an increase of the annual allowance for this particular tax perhaps would’ve been preferable. Even so, the extension of Entrepreneur’s Relief to long-term investors (minimum of three years) in unlisted companies may prove to be a nice addition, given the low 10% rate of tax and generous £10 million lifetime limit.
As is often the case with Budgets, the devil is very much in the detail and the wider implications of many of the announced changes will become clearer in the coming days and weeks. For now at least, it appears as though we were spared many of the more controversial possibilities such as the ‘Pension ISA.’