Help for buyers but where are the homes?

A vote-winning Budget promised less tax, greater savings flexibility, and government handouts for first-time housebuyers

Simon Read@simonnread
Friday 20 March 2015 20:30
The Budget, says one critic, should have done more to encourage construction of affordable homes
The Budget, says one critic, should have done more to encourage construction of affordable homes

The Budget dust may have settled a little but political arguments will continue right through until the election about whether it brought good news or bad news.

On the face of it, there was lots of good news – not least from the planned raising of the tax-free personal allowance, the amount you can earn each year without having to pay any income tax. We already knew it was climbing to £10,600 in April, but the Chancellor revealed it will rise to £10,800 in April 2016, and to £11,000 in 2017.

Higher-rate taxpayers weren't forgotten. The Government will increase the point at which they start paying 40 per cent tax by £315 in 2016 and £600 in 2017 – taking the level to £43,300 for the 2017-18 tax year.

But Gillian Guy, chief executive of Citizens Advice, said: "Increasing the personal allowance is little help to those who are really struggling. A better way to help those on the lowest incomes would have been to raise the amount people earn before paying national insurance – this really would take low earners out of tax and ensure it pays to work."

Meanwhile George Osborne claimed that 95 per cent of savers will benefit from the new personal savings allowance when it comes into effect in April 2016. From next year, basic-rate taxpayers won't have to pay tax on the first £1,000 of interest received on the money they have set aside, while higher-rate taxpayers will be able to earn £5,000 in interest and not pay tax on it.

Richard Lloyd, executive director of the consumer group Which? said: "The tax break and new flexibilities on savings will prove popular with the millions who have got a raw deal on their savings in recent years. But there are still many savers whose money is languishing in extremely poor-paying accounts, so the financial industry must now play fair and help people get a better return."

The new "Help to Buy" Isas – a simple cash incentive for first-time homebuyers – will be introduced in the autumn. Anyone who saves into one –they will be offered by banks and building societies – will have their cash topped up by 25 per cent when they buy a house, up to a maximum handout of £3,000.

They can save up to £200 a month and get a £50 bonus each time, up to the limit. But to reach that, they'd need to save £12,000. Even with first-time buyers being allowed to start their Isa with £1,000 this autumn, it will still take them four years and seven months to be able to save £12,000 and qualify for the maximum handout.

David Orr, chief executive at the National Housing Federation, said: "The Help to Buy Isa will help people scrape together deposits, but it fails to address the root cause of unaffordability – the chronic undersupply of homes, which has driven up prices. It also does very little for those languishing on social housing waiting lists, in temporary accommodation and the homeless – who are victims of an undersupply of affordable housing."

Normal Isas are to be made more flexible. At the moment, if you take cash out of your Isa, you can't put it back. But the restriction will be scrapped by the autumn, so you can withdraw and replenish without losing your Isa tax benefits – as long as the repayment is made in the same financial year as the withdrawal.

As a reminder, the Isa allowance is climbing to £15,240 in April. Finally, in a much-trailed move, pensioners who have already bought an annuity will, from April 2016, be given the same freedoms as people aged 55 and over – in that they'll be able to take the cash from their annuity. There will still be tax to pay, but it will be cut from 55 per cent to their usual rate of income tax, whether that's 20 per cent or 40 per cent.

Steve Groves, chief executive of the annuity provider Partnership, said: "It now falls to the Government and industry to create a safe annuity market which provides value to consumers."

Cutting the red tape: the end of the annual tax return

The annual tax return is to be replaced by a digital account. The change will eventually affect a lot of people – around 11 million, the Treasury reckons. Under the proposed new system, by 2017 those with simple tax affairs – such as the hundreds of thousands of high-income parents who have been forced to complete tax returns because they claim child benefit – will be released from yearly returns.

Soon after, hopefully, those among the rest of us with relatively simple finances will be able to control our tax affairs through our phone or laptop. And by 2020 small businesses will be able to use the new digital tax accounts, allowing them much more control over what tax they owe and when to pay it.

Charlotte Barbour of the chartered accountancy body ICAS said: "There is a risk that this could lead to the exclusion of those who are unable to use this delivery mechanism. The elderly, vulnerable and poor may not always a have adequate resources or inclination to file online."

James Ward of the law firm Seddons said: "The move could release millions of taxpayers from what is clearly a cumbersome and, for most, overly complicated process. For those with more complex tax affairs, investments or sources of income, little will change when it comes to tax despite this newly heralded digital era."

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