MILLIONS of under-40s will get a 25 per cent Government top-up from next
year — on money they put into a new Lifetime Isa.
Chancellor George Osborne unveiled the plan yesterday as part of his “Budget
that puts the next generation first”.
The new individual savings accounts are designed to encourage young people to
save up for a house or prepare for retirement.
Savers aged between 18 and 40 will get £1 from the Government for each £4 they
put in to the Lifetime Isa before they turn 50.
A maximum annual allowance of £4,000 will therefore be topped up to £5,000 —
so savers could bag an extra £32,000 in total.
But the cash can only be used for buying a new home before the age of 60, when
it can then be taken out tax-free for retirement.
If savers want to use their money for anything else they will lose the
government bonus – and be hit with a five per cent charge.
Mr Osborne declared yesterday: “Put in £4,000 and the Government will give you
£1,000. Every year. Until you’re 50.
“You don’t have to choose between saving for your first home, or saving for
your retirement.
“With the new Lifetime Isa the Government is giving you money to do both.”
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The scheme — expected to be available from next April — rose from the ashes of
Mr Osborne’s pension Isa, which he was forced to ditch amid fierce
opposition.
He hopes the Lifetime Isa will address woeful levels of savings among
youngsters — but it received a mixed reception yesterday.
Philip Smith, from PwC, warned: “Market forces are now likely to drive more
younger savers towards Isas and away from pensions.”
He said: “It’s interesting older savers have not been included. This may point
to a future dual-track system, leaving the current pension system in place,
but introducing the pension Isa by stealth.”
Caroline Abrahams, of Age UK, said: “We accept that the flexibility of a
Lifetime Isa may be attractive but this must not come at the cost of a
proper pension in later life.”
But Jimmy McLoughlin, from the Institute of Directors, said: “The announcement
of a Lifetime Isa is an overdue recognition of the shifting nature of
employment.
“Young people expect to move company, and even career, several times in their
working lives and do not think pensions are a good fit for them.
“In a useful and ingenious response, the Chancellor has shifted
easy-to-overlook pension tax relief into a new Isa more accessible for
under-40s.”
A Treasury spokesman hailed the Lifetime Isa as a “radical new way for the
next generation to save”.
A £5,000 increase in tax-free savings was announced yesterday as the limit on
hugely popular Isas was raised to £20,000 from the current £15,000.
Case study: Katie and Lawrence can save for a home at last
By MIKE RIDLEY
MUM Katie Christie thinks the new Lifetime Isa scheme may finally help her
save towards a home for her family.
Katie and partner Lawrence New, both 27, have been trying to get on the
property ladder since the birth of their daughter Annabella, four.
Office manager Katie earns £1,600 a month and sales rep Lawrence earns £1,500
a month plus commission, but they cannot afford a deposit.
Katie, from Plymouth, Devon, said: “It would mean the world to us to have a
home of our own.
“We have been renting and are sick of the instability. We have had to move
several times which can be tough with a child.
“Our landlords are planning to move back into their house soon, so we know we
will be on the hunt for a house again soon.
“Owning our own home would mean financial stability. All our spare income goes
on childcare at the moment. But when Annabella starts school in a year we
will be able to start putting the £400 a month we spend on her care towards
a deposit.
“I will certainly look into the new Lifetime Isa.
“I can’t believe the Government will put in an extra 25 per cent — it’s a
great help to those of us struggling to get on the property ladder.
“It’s a daunting prospect saving for our first home, but I’m glad the help is
going to be out there for people like us.”
500,000 workers to be freed of 40% tax rate
By CRAIG WOODHOUSE
HIGH-earners won a tax break yesterday as George Osborne buttered up the Tory
faithful.
He lifted the bar at which 40p income tax begins.
It currently kicks in at £42,385 but rises to £43,000 next month and then
£45,000 from April 2017.
The move will give a tax cut worth more than £400 a year and lift half a
million people out of paying higher-rate tax, said Mr Osborne.
He boasted: “It’s the biggest above-inflation cash increase since Nigel Lawson
introduced the 40p rate almost 30 years ago.”
His action will cheer Tory MPs whose voters have been dragged into the 40p
rate. And it was seen in Westminster as a bid to boost his standing among
colleagues ahead of a leadership bid once David Cameron stands down.
Similarly, he announced that tolls on both Severn Bridges from England to
Wales will be halved by 2018 — in a bribe to Welsh and South West voters
ahead of May’s local elections.
But David Finch, senior economic analyst at the Resolution Foundation, said:
“These cuts will largely benefit high-income households.
“The top half of households will receive more than 80 per cent of the benefit.
It’s hard to justify at a time of major fiscal pressure.”
Threshold lift joy for 31m Brits
By CRAIG WOODHOUSE
TAXES were cut for 31million people yesterday under the latest move to help
strivers.
Hard-working Brits will be able to earn £11,500 without income tax from next
year as George Osborne raised the threshold again.
The personal tax-free allowance of £10,600 will rise to £11,000 in April, and
will go up to £11,500 next year.
It means 1.3million more people will pay no tax at all from 2017, while basic
rate taxpayers will be £100 a year better off.
Mr Osborne hopes to raise the threshold to £12,500 by 2020.
He said: “The best way to help working people is to let them keep more of the
money they earn.”
But David Kilshaw, from global accountancy giant EY, argued the move would not
help the lowest paid, who already pay no tax. He said: “An increase in the
National Insurance thresholds would have had a more significant impact on
their wallets.”
The tax threshold has risen steadily since Mr Osborne became Chancellor in
2010, when it was £6,475. Raising it was a Lib Dem policy when they
were in Coalition.
But Mr Osborne claimed it as his own as he tried to paint the Tories as the
“party of working people”, and has kept raising it due to its popularity.
He said basic rate taxpayers will have more than £1,000 extra in their pockets
than when he took office.
Taxpayers’ Alliance chief executive Jonathan Isaby said: “Taxpayers will
welcome tax cuts like the rise in the personal allowance.”
See cash pot online
PENSIONERS will get a new online “dashboard” so they can manage all of their
retirement pots in one place.
The tool to help OAPs keep on top of their cash will be in place by 2019.
It comes after research found that Brits move jobs an average of 11 times.
This could potentially leave workers confused by the sheer number of different
private pensions to keep track of.
It comes after consumer champion Which? found almost half of over-50s do not
know the value of their pension.
The move is part of a host of measures to help Brits be more financially
savvy. Another will allow OAPs to take out £500 tax-free for financial
advice.
NI help for 3.4million
MR Osborne gave 3.4million self-employed Brits a tax boost, freeing them from
paying a band of National Insurance.
He fulfilled an election pledge to scrap Class 2 NI contributions, valued at
about £130 a head.
Small businesses that make less than £1,000 a year were also helped.
The first £1,000 earnings of Airbnb hosts and eBay sellers will be tax-free to
aid the “sharing economy”.
The Chancellor said: “It’s a tax break for the digital age. At least half a
million people will benefit.”
Investors handout
TAX on personal investment profits by high earners was slashed from 28 per
cent to 20 in a £630million giveaway.
Capital Gains Tax for basic rate taxpayers went from 18 to ten per cent.
The move will not cover houses and instead will try to encourage lower earners
to buy and sell shares.
It was hailed by Tory MPs but Labour dubbed it the “tycoon tax cut”.
Former Shadow Chancellor Chris Leslie said: “It is a phenomenal giveaway to
the very wealthiest people.”