The Budget and you
Last month, Chancellor of the Exchequer George Osborne delivered his Budget to Parliament. We’ve summarised the key ways that we think the 2016 budget may affect our customers’ finances.
|Five budget changes which may affect you|
|ISA allowance: no increase this year
For 2015/2016 the Individual Savings Account, or ISA, allowance will remain the same as last year, that is, £15,240. However, from the next financial year, April 2017, the new ISA limit will be £20,000. Just as now, this amount can be saved in cash, stocks and shares, or a mixture of the two.
|New Personal Savings Allowance introduced
6 April saw the Government’s new Personal Savings Allowance come into effect. Under the new allowance basic rate taxpayers (20%) will be able to earn £1,000 in savings income tax free, while for higher rate tax payers (40%) this figure will be £500. Those in the highest tax bracket get no allowance. It is estimated that 95% of UK savers will no longer pay any tax on their savings income as a result.
|New Lifetime ISA announced
To encourage long-term saving, the Chancellor announced a new Lifetime ISA, available from 6 April 2017, which will allow under 40s to save £4,000 each year and receive a 25 per cent bonus on savings from the Government for every pound saved, every year. Contributions can continue to be made with the bonus paid up to the age of 50.
Although all of the information is not available yet, the Treasury has indicated that funds can be used to buy a first home with the Government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement.
It will be possible to hold a regular ISA in addition to a Lifetime ISA, but funds will not be allowed to exceed the ISA allowance, which will be £20,000 by April 2017 when the Lifetime ISA is introduced.
Al Rayan Bank welcomes the announcement of the Lifetime ISA and will investigate whether a Sharia compliant version can be developed once more information is available from the Government. For more information, click here
|Tax thresholds and personal allowances raised
The personal allowance, which is the amount everyone can earn without paying any income tax, has risen from £10,600 to £11,000. In April 2017 it will increase again to £11,200 and ultimately reach £12,500 by 2020. The Chancellor also announced he will bring in a new law to ensure that the personal allowance always rises in line with the minimum wage.
For the first time in five years, the tax threshold, which is the amount workers have to earn before they pay higher rate tax, has increased from £42,385 to £43,000 a year. The government plans to increase this to £50,000 by 2020.
|New National Living Wage introduced
A higher minimum wage, dubbed as a National Living Wage by the Chancellor, came into effect on 1 April. Full and part-time workers aged 25 and above are now guaranteed to receive at least £7.20 per hour, rising each year to an expected target of more than £9 per hour by 2020. According to the Office for Budget Responsibility, the public body that provides analysis of the public finances ahead of the budget, the National Living Wage will give a pay rise to 1.3m workers this year.
In August last year, Al Rayan Bank became a ‘Living Wage Employer’. This means we voluntarily pay our employees a higher rate than the new National Living Wage. The rate we pay our employees is based on the cost of living as calculated by Living Wage Foundation at £9.15 an hour in London and £7.85 an hour outside London.