The Budget 2016; what does it mean to you?

Thursday 17 March 2016, 12:04 PM

Sam Barratt
Financial Journalist , Freelance

  • Budget 2016 Lg

It was a bit of a mixed bag when Chancellor George Osborne announced the details of his eighth Budget.

While there were a few sweeteners with the new Lifetime ISA and the capital gains tax cut, he hit our pockets with the sugar tax and a further increase in insurance premium tax.

These are the key points and what they mean to you.

  • Higher income tax allowances
  • The amount you can earn before you pay income tax is increasing in April 2017 to £11,500 (£11,000 in 2016/17) with the higher rate tax threshold increasing from £43,000 in 2016/17 to £45,000 in April 2017.

    If you're a basic rate taxpayer this increase will put an extra £100 in your pocket.

  • New sharing economy tax allowances
  • The Chancellor also announced two new tax-free allowances of £1,000 from April 2017 - one for selling goods or providing services and the other for income from property you own. This will be good news if you earn less than this amount renting out a room in your house through a website such as Airbnb, selling goods on Etsy and eBay or providing services such as a lift or a loan of your power tools.

    If you make money in this way, each of the allowances could cut your tax bill by up to £200 a year.

  • Capital gains tax cut
  • Make a profit on anything you sell from April 2016 and you could benefit from a lower capital gains tax. The rates, currently standing at 18% and 28% for basic and higher rate tax payers, will be slashed to 10% and 20% respectively.

    There is however an important exception - residential property. It doesn't apply on your main home but if you're a buy-to-let landlord or you have a holiday home, you'll still be hit with the old, higher, rates when you sell these properties.

  • ISA allowance increase
  • From April 2017, the ISA allowance will increase form £15,240 to £20,000 a year.  

  • Lifetime ISA
  • Also from April 2017, anyone aged 18 to 40 will be able to save up to £4,000 a year into a new Lifetime ISA until they're 50 and receive a 25% bonus from the government. These savings will be earmarked for retirement income once you reach age 60 or to help you buy your first home.

  • Savings scheme for low-paid workers
  • A new savings scheme, Help to Save, was also unveiled in the Budget. Available for employees on in-work benefits, if they save £50 a month they will receive a bonus of 50% after two years. This could be worth up to £600. Continue for another two years and they'll get a further £600.

    For anyone on in-work benefits and able to save, this could be worth up to £1,200 over four years.

  • Insurance premium tax increase
  • After bumping up the tax we all pay on short-term insurances such as our home, car and medical insurance from 6% to 9.5% last November, Osborne slapped another half a percentage point on, taking it to 10%. This, he said, would be spent on flood defences.

    The good news is the tax doesn't apply to long-term insurances such as income protection or critical illness insurance. But, as this will bump up the cost of other forms of cover, make sure you shop around for a better deal at renewal.

  • New sugar tax  
  • From April 2018, soft drinks companies will pay a levy on drinks with added sugar. This will apply to drinks with more than 5g of sugar per 100ml, but not milk-based or fruit juices. The money raised - £520m a year - will be spent on primary school sport.

    This will probably mean an increase in the price of a can of pop, but perhaps that's a good thing!

  • Fuel duty freeze
  • This will be frozen again this year, making it the sixth year in a row it's not moved and saving the average motorist £75 a year.