Give your own budget a boost
...with a little help from the Chancellor
LET’S be honest, the Budget was a little bit of a personal finance damp squib with nothing to shock or marvel at. Safety first was the order of the day for Chancellor of the Exchequer Philip Hammond. But Budget week is always a good prompt to take a look at your finances. Here, The Mail on Sunday’s award-winning personal finance team explains how you can transform your own household budget – with some assistance from the Chancellor.
WHAT WAS ANNOUNCED?
A PLEDGE was made to build 300,000 homes each year and stamp duty was scrapped in England for many first-time buyers.
The duty will now no longer be charged on property purchases made by first-time buyers up to £300,000 in value.
Those spending up to £500,000 on a first-time home – including most buyers in London – will pay no stamp duty on the first £300,000.
Currently, the average value of a home acquired by a first-time buyer is just over £207,500. Pre-Budget, a buyer would have paid around £1,650 in stamp duty.
For London dwellers, where the average first-time buyer price is £410,000, the stamp duty bill will drop from £10,500 to £5,500.
In Scotland there is no Land and Buildings Transaction Tax – the equivalent to stamp duty – paid on house purchases up to £145,000. It remains to be seen whether Finance Secretary Derek Mackay raises that threshold, or offers specific help to first-time buyers, in next month’s Scottish Budget.
Critics say the key Budget reform could push house prices up in England as demand rises for first-time buyer properties.
YOUR ACTION PLAN
MANY people hoping to buy a first home will be boosted by the reduction in stamp duty costs.
But there are other ways they can keep purchase costs to a minimum and smooth the buying process. First, they should check their credit rating – because mortgage lenders certainly will do so before offering you a home loan. The better your rating, the greater the chance of having an application accepted.
Use any or all of the three credit reference agencies – Experian, Equifax or Callcredit – to get an idea of your credit rating.
Do this six months in advance, giving yourself time to fix issues that might count against you.
For example, unused credit cards left on your credit file could be misinterpreted as suggesting you have a predilection for debt.
Saving a healthy home deposit is essential. The bigger the deposit, the cheaper the loan you will get. Saving can be made easier by using the Help to Buy scheme.
This allows buyers in England to either buy a share of a property (between 25 and 75 per cent) while paying rent on the remainder – or take a Government loan to bolster the down-payment on a newly built home. While these squash the upfront cost of buying a home, a Help to Buy Isa can simultaneously boost deposit savings.
Put away £200 a month and the Government adds a £50 top-up, up to a maximum £3,000 a year. Joint buyers can each save into a Help to Buy Isa. Find more at helptobuy. gov.uk. Alternatively a Lifetime Isa can be used to help build a first home deposit.
Customers must be over 18 and under 40 and can save up to £4,000 a year until age 50. The Government adds a 25 per cent bonus up to £1,000 a year. There is a choice of investment or cash-based Lisa, although only Skipton Building Society currently offers a cash Lisa.
Buyers with small deposits can get on the housing ladder if their parents are happy to act as ‘guarantors’. Lenders Barclays,
The Family Building Society, Nationwide Building Society and Aldermore are among those which lend to first-time buyers who have relatives willing to step in for them if they have problems meeting the monthly mortgage costs.
Use a broker to search for a mortgage deal, such as London & Country or Charcol. Find out how much stamp duty you will have to pay by using the Government calculator at tax.service.gov.uk/calculate-stamp-duty-land-tax.
When it comes to conveyancing – the legal process of buying – find a solicitor via the Law Society. Visit solicitors.lawsociety.org.uk or call 020 7320 5650. UNLIKE recent Budgets, there was little in Wednesday’s Budget to cheer, annoy or surprise longterm savers – apart from a nasty stealth tax on those who hold endowment plans or certain types of life policy.
Thankfully there was no change in the tax relief boost that savers get for putting money into a pension – something which recent governments have toyed with but not yet been brave enough to implement.
Nor was there any reduction in the maximum annual amount – £40,000 – people can contribute into a pension or an attack on the precious 25 per cent of a pension fund that savers can take as taxfree cash at retirement.
The only announcement that raised a cheer was an increase in the value of a pension fund before the taxman comes knocking for a slice of it.
The so-called lifetime allowance was increased from £1million to £1,030,000 from April next year. It means only sums above this amount will be subject to extra tax when someone wants to start taking income from a pension.
There was no increase in the annual amount that can be saved into – or invested in – Individual Savings Accounts. This stays at £20,000. The Chancellor also backed off from using the Government’s savings arm, National Savings & Investments, to launch a new product that would put income in the hands of pensioners – a move that would have proved popular given the reticence of banks and building societies to pass on the recent increase in base rate.
For those who hold investments outside pensions and Isas, there was an increase in the capital gains investors can make from the sale of shares or funds before they are taxed on the profits. This will increase next April from £11,300 to £11,700.
Some experts thought the amount that can be invested in tax-friendly – but high-risk – Venture Capital Trusts and Enterprise Investment Schemes could be trimmed back. But this was not the case. Indeed, for certain types of Enterprise Investment Scheme, the annual allowance will double from next April to £2million although it will be of limited appeal to most investors.
YOUR ACTION PLAN
LITTLE change should be no excuse for continued lethargy. If you are not using the tax-friendly savings allowances currently available, try to do so because there is no guarantee they will be around for ever.
Certainly, if the Government is forced into an early General Election and a Labour administration is returned, a whole raft of savings incentives will be under threat. Higher rate relief on pension savings will be top of Shadow Chancellor John McDonnell’s hit-list while Isas could be shrunk back.
So, if you can put money into a pension do so, especially if you are selfemployed and do not have a benevolent employer boosting your contributions.
The same goes for Isas – try to use as much of your annual £20,000 allowance as possible so as to build a tax-free fund for the future.
Although your contributions are made from taxed income, you can access an Isa when you want to irrespective of age – unlike a pension – and the proceeds are tax-free (again, unlike most of a pension).
Some venture capital trusts are currently available to invest in. For every £10,000 you invest, you get back £3,000 from the Government up to an annual maximum investment of £200,000. But you must hold your investment for five years. Dividends are free from tax. According to wealth manager Tilney, schemes open include those managed by Albion, Maven and Mobeus.
Although cash savings may be unattractive, remember that up to £1,000 of interest per year remains tax-free if you are a basic rate taxpayer – £500 for higher rate.
WHAT WAS ANNOUNCED?
SANTA Claus largesse it is not, but a tweak to tax-free savings plans from next April means friends and family will be able to put a little more away for the younger generation out of the taxman’s reach.
As a result, the annual subscription Adam Taylor bought his first home just three weeks ago limit for Junior Isas (Jisas) and Child Trust Funds will rise from £4,128 to £4,260 – £355 a month. Money can be squirrelled away in cash or shares, or a mixture of both.
YOUR ACTION PLAN
DO NOT delay saving for children. Through the magic of compounding – where interest is earned on interest each year – savings grow faster the earlier they are started. For children, with time on their side, equities or investment funds make best sense – in terms of what to hold inside a Jisa. This is because over the long term shares almost always outperform cash savings.
Remember that adult cash Isas (with an annual allowance of £20,000) are also available to children from the age of 16 – and eligible children can also hold a Jisa at the same time.
For parents with an eye on an even longer term horizon, consider starting a pension for your children. You can put up to £3,600 a year into a personal pension and receive basic rate income tax relief – currently 20 per cent – on the contribution.
Your children may not be able to access the pension until at least age 55 but when the time comes they may well thank you. Robert Gardner, pictured right, is co-founder of pensions consultancy Redington and a campaigner on financial education. He says: ‘Parents should open a pension for their child as soon as possible.
‘All they have to do is invest £5.50 a day – the equivalent of £7 with tax relief on top – from birth until their child’s tenth birthday, and then stop. Their child will then be on course to having a £1million pension fund at retirement age 65.’
WHAT WAS ANNOUNCED?
HOUSEHOLDS struggling with a squeeze on their wallets due to higher food costs and low or no pay rises were offered some cheer last Wednesday.
Drivers who have suffered hefty increases on both fuel and motor insurance over the past year were awarded a freeze on fuel duty.
But buyers of new diesel motors from next April will see their road tax – Vehicle Excise Duty – leap in the first year if they pick a model that fails to meet new emissions standards.
But many families will hopefully be able to free up more cash from April for spending – or saving – thanks to an rise in certain tax allowances.
The personal tax allowance – what you can earn before paying tax – will rise from £11,500 to £11,850 in April. The number of people falling out of the higher rate tax net will also increase when the threshold for those paying 40 per cent tax is lifted from £45,000 to £46,350.
However, middle income Scots are already worse off as the higher rate threshold here was kept at £43,000 this year. Middle-class Scots already face paying £340 more income tax next year, than someone on the same salary in England.
YOUR ACTION PLAN
THESE tiny tweaks to tax breaks will not make you feel much better off. Like the Chancellor, families will need more than ever to balance expenditure against outgoings and squeeze the most they can from their finances. Quick fixes to consider include cheaper options for everyday bills such as energy, broadband and home and motor insurance. Use comparison websites such as GoCompare or comparethemarket – or haggle with your current provider. Consider buying anything from insurance to TV sets via a cashback website such as TopCashback or Quidco. These give you cash for making purchases through their websites. Take control of your household debts, especially the mortgage. If you are on a standard variable rate – on average 4.7 per cent – switching to a keenlypriced five-year fixed rate at 1.74 per cent could save a typical borrower with a £100,000 loan £1,864 a year – or £9,322 over the five years. Similarly, check the interest you pay on credit cards and see if you can switch.