Pre-election budget encourages stock markets

Stocks in the FTSE100 and other UK indices soared yesterday after the Chancellor’s budget speech.

There were some interesting tweaks and announcements made but perhaps the main thrust of the speech saw George Osborne highlighting that the UK economy is doing pretty well on most fronts.

The Chancellor revealed that the Office for Budget Responsibility (OBR) is now projecting GDP growth of 2.5% this year (up from 2.4%) and 2.3% next year (up from 2.2%). He also announced that government debts - as a proportion of the total size of the economy - are now expected to begin falling this year.

With the latest figures out yesterday from the Office for National Statistics (ONS) showing that the employment rate is now at its highest level since records began, with real wages growing strongly and also with continuing low inflation, there were plenty of positives to point out.

Against this backdrop, there were also changes announced to ISAs, pensions, savings and tax.

With Isas, further plans were announced to increase the flexibility of Cash Isas. Savers will now have the freedom to withdraw and replace money from their Isa in the same tax year without it counting towards their annual Isa subscription limit for that year. As previously announced, the Isa allowance for the 2015-16 tax year will be £15,240.

A new "Help to Buy" Isa scheme was also announced for first-time buyers. For every £200 a first-time buyer saves, the government will add £50. This bonus will be available for up to £15,000 only. So, if a first-time buyer saves £12,000, the government will add £3,000.  

On the pensions front, plans were announced to set up a consultation to look to extend the new pensions freedoms to existing pensioners, giving them the opportunity to cash-in their annuities.

The budget also saw a further reduction in the Lifetime Allowance, from the current £1.25 million to £1 million in 2016/17, but then rising with inflation from 2018.

The Chancellor also stated that he would cut taxes for 27million people by raising the personal allowance to £11,000 by 2017. It will increase to £10,600 in April 2015, to £10,800 in 2016-17 and £11,000 in 2017-18. He also announced the first above-inflation rise for seven years for the higher rate tax band, which will take around 100,000 people out of higher rate tax band by 2017. The higher rate tax threshold will increase from £41,865 to £42,385 in the 2015-16 tax year.

A new idea announced was the 'personal savings allowance'. This will mean that for basic rate taxpayers the first £1,000 of any savings interest will be free from tax. The figure will be the first £500 for higher rate taxpayers. The Chancellor stated that this new ‘personal savings allowance’ will take 95% of taxpayers out of savings tax altogether.

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