Q. I understand this new “Lifetime ISA” will give me tax relief like a pension, but I can withdraw funds early. Does this mean it is better than the pension I am being Auto-enrolled into by my employer?
A. In his budget George Osborne unveiled the Lifetime ISA which will be available from April 2017. Full details are yet to be confirmed, but it will be for those under age 40 who will be able to save up to £4,000 per tax year, to which the Government will add a further £1,000. So the government contribution is similar to tax relief on pensions for a nil or basic rate taxpayer, but not as good for a higher rate taxpayer. What your Auto-enrolment pension offers, however, is a contribution from your employer which you do not get if you opt out. The Lifetime ISA will have a facility to access funds early (after at least a year) for use towards a first house purchase, retaining the government bonus. The fund is also available before age 60, but you would lose the effect of the bonus, plus a further 5% charge. This is a curious move at the same time as Auto-enrolment is still being implemented. In an ideal world we would recommend taking advantage of both the Auto-enrolment pension and the Lifetime ISA, particularly if you are saving towards your first home in a few years time. However, as the majority of those under 40 will probably agree, there is only so much people can afford to save, so choices will inevitably have to be made according to your priorities.
Q. In the latest budget did I spot correctly that Capital Gains Tax (CGT) is going to be reduced?
A. Yes you are correct; in the Chancellor’s speech last week he said: “The headline rate of CGT is currently one of the highest in the developed world. We want our taxes to be among the lowest.” He proceeded to slash the headline rate of CGT from 28 per cent to 20 per cent, and cut the CGT payable by basic rate taxpayers from 18 per cent to 10 per cent. These will come into effect in April. A word of warning though, the new lowered rates do not apply to residential property, so if you sell residential property (other than your prime residence, which of course is exempt) the existing rates of CGT still apply.
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