CHANCELLOR George Osborne hailed his Budget to be a “savings revolution” for the British population as he unveiled a new scheme for first-time buyers which will see the government contribute 25 per cent towards their deposit.
He also confirmed that the existing tax returns will be scrapped and replaced with real-time digital tax accounts, putting an end to the rush to file and pay income taxes by the end of January.
At a stroke – tax free banking for almost entire populationGeorge Osborne
Under the new Help to Buy Isa scheme, Mr Osborne said would-be home owners will receive £50 for every £200 they put into the account – up to a maximum contribution of £3,000.
The new product, which is due to be launched in the autumn, comes as Mr Osborne also confirmed a further increase in the personal tax-free allowance – to £10,800 next year and £11,000 the year after.
He said the move would mean a tax cut for 27 million people – including 2.3 million north of the Border. It is estimated that the average working taxpayer will save an average of £555. A total of 287,000 Scots will no longer pay any tax.
Those at the upper end of the income bracket will also benefit from the Chancellor’s Budget, with an above-inflation rise for the first time in seven years from £42,385 this year to £43,300 by 2017-18.
He also said that a new tax free savings allowance of £1,000 for basic rate tax payers and £500 for those paying the higher rate would mean 95 per cent of people will no longer pay tax on any interest they earn from their bank.
“People have already paid tax once on their money when they earn it. They shouldn’t have to pay tax a second time when they save it,” said Mr Osborne. “At a stroke we create tax-free banking for almost the entire population.”
He will also scrap rules which mean savers lose out on their annual tax free Isa allowance if they move their money once it has been placed in an Isa account. Under the new regulations, money can be moved and put it back in within the same year, without the saver losing their Isa tax benefits.
Consumer groups welcomed the Budget and said it brought good news for struggling savers and pensioners.
Calum Bennie, savings expert at Scottish Friendly, said: “The new tax-free savings allowance and a rise in the personal tax allowance will mean that a large section of our society is going to be a lot better off following this Budget.
Richard Lloyd, executive director at 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.”
Mr Osborne also unveiled plans to allow five million existing pensioners to cash in their annuity for a fixed lump sum.
Mr Lloyd added: “People who feel trapped by a poor value annuity will welcome the chance to take advantage of the new pension freedoms. But pensioners have been failed miserably in the past so the government must keep a firm grip to ensure people aren’t ripped off again.”
The Help to Buy Isa will offer a maximum government contribution of £3,000 on £12,000 of savings on a property with a maximum purchase value of £250,000 in most areas of the UK – or £450,000 in London.
In Scotland, it is estimated that this measure could help around 105,000 people to purchase their first home in the next five years.
The first-time buyer – ‘Isa is a welcome boost’
DANCE instructor Bekki Wallace, 32 and her boyfriend Alan Black, a mechanic, have been saving for five years to buy their first property.
“I think the Help to Buy Isa is a brilliant idea – it could give people that bit extra to be able to get a property they want. We have already been saving money in Isas for years to try to get enough for a deposit.
“The idea of the scheme is great as it stops people from using the money for anything else if they want to get the government contributions – that wouldn’t be a problem for us as we’ve been saving purely to buy, we’re not going to take it out to spend on a holiday or anything. We have both been living with our parents to save the £500 a month it would cost us in rent. We want to live in Edinburgh – we looked at Help to Buy schemes for new builds outside of the city, but by the time we’d paid for petrol, our outgoings would be the same.
“It has been hard for us to get on the property ladder because, although I have been self employed for over 13 years, my income isn’t counted as consistent, so they don’t take a lot of it into account. My boyfriend is employed, which is a help, but the mortgage terms are very strict these days.
“The £250,000 limit won’t be a problem for most first-time buyers as I don’t know anyone in our position who would be able to spend more than that on a home.”
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