I have plenty of opinions about the government’s priorities, but this blog isn’t about that, so I’m going to take an unbiased look at what the changes could mean for those who, like me, are approaching personal finance in a decidedly unusual way. I’ll give each one a thumbs-up, a thumbs-down and a thumbs-waving-about-in-the-middle as I see fit.
For those desperate to quit debt, build savings, escape the rat-race and distance themselves from consumerism, there were some really interesting announcements.
Firstly, there’s going to be a new £1,000 tax allowance for side-hustles. Becoming an Airbnb host, an eBay seller or a loft storage space renter are all opportunities touted by those trying to become debt-free or financially independent. But they have also been pretty awkward in terms of tax. You’d have to register as partially self-employed, fill in an annual tax return, etc.
Now, we’re told we don’t have to worry about the first grand, fill in any forms or anything. To be honest, the spectre of paperwork has always put me off pursuing a side-hustle, so this opens up a few opportunities for me. All in all, this one gets a thumbs-up.
In other news, the government has announced it is raising the annual ISA allowance per person from just over £15,000 to £20,000. This means the interest you get on savings or investments up to this level will be tax-free (mostly – it’s complicated). Now, you may be thinking, who the hell saves £20k each year??? And you’d be right to think this. But what seemingly only benefits the rich can also benefit those who are mad-frugal with huge savings rates.
Having said that, I’m guessing even the very frugal will struggle to put aside £20k each year. Hell, most people barely take home that sort of money. So, I call bullshit on this new ISA raise. It gets my thumbs-down.
Ever look at your pay packet and curse at the amount of money you never even see before it’s whisked away by the tax-man? This next one may be for you.
The amount people can earn before they start getting taxed is going up a bit. It’s £10,600 now and we knew it would be going up to £11,000 next month. Now, in April ’17, it will go up to £11,500. My little brain has worked out that it means we’d pay £100 less tax a year. Well, it’s something, I guess. But the point where you go from paying 20% tax to 40% tax is taking a far bigger leap, of £2,000, saving higher earners £400 a year.
Personally, I think this is the wrong way round. We need the biggest tax breaks to hit all earners, not just the high earners. But every little helps, I guess, and this will make a small but tangible difference to people’s finances without making them jump through any silly hoops, so this one gets a thumbs-waving-about-in-the-middle.
Capital gains tax is being cut. This is the tax you pay if you make money on shares, for instance. It’s a thumbs-up for those investing money in the hope of retiring early.
Then, we were told about a new thing called a Lifetime ISA. It’s a kind of spin on the Help to Buy ISA that gives people a boost when saving for a house deposit. Under this scheme, you can save up to £4,000 a year and for every £4 you put in, the state will add £1.
Sounds great for savers. But there’s more than a few catches. You have to be under 40 to start one, when they launch next year. You only get to keep the bonus if you put the money towards a house deposit or leave it sat there until you’re 60. If you take it out early, you lose the bonus and there’s a 5% charge. Etc, etc.
I’ll be honest, my little heart leapt when I first heard about this one. I thought it was ideal for those pursuing financial independence, like I hope to one day, once I’ve beaten my debt mountain. But the more I think about it, the less useful I think it’ll be. For a start, limiting access until you’re 60 sounds pretty dismal. This is definitely about saving for proper retirement, not early retirement.
The government says it wants to support savers and strivers, or whatever its latest awful buzzwords are for the financially responsible. But there must be simpler ways of rewarding saving.
So, I’m not sure whether this gets a thumbs-up or thumbs-down yet. The devil will be in the detail.
God, I hope that was more interesting to read than it was to write. Pass the wine…