Top 5 things you should take from Budget 2015
The blurred lines between politics and economics were very much in evidence at Wednesday’s pre-election Budget, and whether George Osborne’s speech was a success in the context of the former will be debated in the days to come.
However, it’s hard to argue that the Chancellor didn't tick a lot of boxes economically, as he triumphantly announced that 'Britain is walking tall again' and ‘the sun is shining.’ Yet perhaps the sector wearing the broadest grin of all today is Britain’s savers, who received a tremendous boost courtesy of the four-pronged ‘savings revolution.’ And as we discuss below, the good news didn’t end there either.
Selling annuities for cash
The first step of this so-called revolution is allowing some 5 million pensioners the opportunity to sell their annuities for cash to a third party from April 2016. The proceeds can then be taken directly, or drawn down over a number of years. Such draw-downs will be taxed at the marginal rate, allowing existing pensioners to reap the same benefits as those taking their pension after April 2015.
As expected, the allowance for Individual Savings Accounts (ISAs) will increase to £15,240, but Osborne also announced new flexibility within the structure. From later this year, Britons will be able to take out their money from cash ISAs and re-deposit it in the same year, without the second deposit counting towards their annual ISA subscription limit.
The third step was perhaps the most notable though, as he confirmed a new Help-to-Buy ISA will go live this autumn. For every £200 put away by first-time buyers towards a deposit, Government will add a £50 bonus. The cap for the total of this ‘bonus’ has been set at £3,000, and is only available on homes up to £250,000 (£450,000 in London). But it nonetheless provides a timely lift for this segment in the face of escalating property prices.
Here at Lending Works, there was another announcement on ISAs we were holding out for. The inclusion of peer-to-peer lending within this structure has already been confirmed and is scheduled to go live in the third or fourth quarter. The only variable that remains is whether these will fall under the existing Stocks & Shares wrapper, or whether a separate ISA will be created. The latter would be the preferred option for us and our lenders (74% of consumers favoured this in a recent survey by the Peer-to-Peer Finance Association), but this will be clarified in the summer.
The fourth and final sweetener of the strategy came in the form of a personal savings allowance. From April 2016, the first £1,000 of interest earned on savings (£500 for higher-rate taxpayers) will be removed from income tax, which Osborne estimates will benefit over 17 million people.
The big triumph for peer-to-peer lenders though is that interest earned on P2P loans will also be eligible for this tax relief, making our platform even more appealing.
The death of the tax return
The four steps above will bring good tidings for savers, but there was another announcement on Wednesday that should also have far-reaching benefits. Although it had been widely leaked beforehand, Osborne confirmed that the annual tax return will be abolished. Some 12 million people – along with small businesses - formerly affected by this ‘complex, costly and time-consuming’ process will now have their tax automatically managed through digital accounts.
This digital tax system will be accessible from computers and mobile devices, and function much the same as an online bank account. Users will even be able to set up direct debits to pay outstanding tax throughout the year. The online system should be in place by 2017 for individuals, and, crucially, will give people real-time information regarding their financial affairs.
Simplifying the tax regime will allow individuals to manage their money with considerably greater ease, and this goes hand in hand with one of our core values at Lending Works - flexibility. Such measures will be cost and time efficient, and the fact that people will be able to accurately assess their finances, and thus be confident in the decisions they make, can only mean good things for the financial landscape as a whole.
There is barely a week to go until the conclusion of the 2017/18 financial year, which means that, as ISA season begins to hot up, time is running out to take advantage of your ISA allowance.
At the Summer Budget in 2015, George Osborne had multiple nuggets of good news for investors in peer-to-peer lending (P2P), most notably the announcement of the new Innovative Finance ISA (IFISA).
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.