The budget: What did it do for savers?

Leaving the political mudslinging and hyperbole aside, what did the budget actually do for savers?

On the face of it, it looks like good news, with a major lift for the ISA system or those seeking to keep more of their money out of the hands of Mr Taxman.

I’m sure there will be more detail still to emerge, so it would make sense to keep a beady eye on the financial press.

Businesses in Kent can apply for a loan from a £200 million fund set up for the county by HSBC
Businesses in Kent can apply for a loan from a £200 million fund set up for the county by HSBC

Even so, what has been communicated clearly is that the ISA limit will gain a substantial uplift from £15,240 in the 2016-17 tax year to £20,000 starting in April 2017. Not bad for one of the most popular savings vehicles and for those to who wish to shelter their savings from HMRC.

As usual, those of us in financial services brace ourselves for a surprise to be announced in the budget. This year’s winner goes to the launch of the new Lifetime ISA to be introduced from April 2017 for the under-40s.

"On the face of it, it looks like good news, with a major lift for the ISA system or those seeking to keep more of their money out of the hands of Mr Taxman"

With an allowance of £4,000, which will form part of the £20,000 total ISA allowance, investors will receive a £1 government top up for each £4 saved, to be added at the end of each tax year.

Investors will be able to withdraw their capital tax-free to buy for their first house (up to a value of £450,000), or after the age of 60. As always, however, there is a catch.

If you wish to withdraw at any time from the Lifetime ISA you will lose your government top up and pay a 5% charge on top. Interestingly and after much debate, the Chancellor decided to leave pension reforms alone in this budget.

One thing to remember is that the new personal savings allowance (PSA) is available from April 6. This allows savers to earn £1,000 interest (for basic-rate taxpayers) or £500 (higher-rate) tax free per year.

Under the PSA, returns on non-ISA savings within the tax-free limit look to be greater than the returns offered by ISA, because rates paid are generally higher at the moment. That doesn’t mean that ISAs aren’t good options however.

As with all financial investments, making an informed choice is always key.

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