Financial sector bodies have welcome 2015 Budget measures that Chancellor George Osborne said were designed to help create a “savings culture”.
They included reforms to ISAs to make them “fully flexible”. At present, any money taken out of an ISA cannot be paid back into it during the same tax year, reducing the tax savings available.
Mr Osborne said on 18 March: “This restricts what people can do with their own savings – but I believe people should be trusted with their hard earned money.
“With the fully flexible ISA, people will have complete freedom to take money out, and put it back in later in the year, without losing any of their tax-free entitlement. It will be available from this autumn and we will also expand the range of investments that are eligible.”
Under a new Help to Buy ISA scheme announced in the Budget, the government will provide a bonus on savings used to buy a first home. For every £200 a first-time buyer saves, the government will provide a £50 bonus, up to a maximum of £3,000 on £12,000 of savings. The bonus will be available on homes valued at up to £450,000 in London and up to £250,000 outside London.
Mr Osborne said: “It’s effectively a tax cut for first-time buyers. We’ll work with industry so it’s ready for this autumn and we’ll make sure you can start saving for it right now.”
The annual amount that someone can put into an ISA and receive interest or income from it tax-free will rise to £15,240 in April.
Meanwhile, a new Personal Savings Allowance will be created from April 2016, enabling millions of taxpayers to receive hundreds of pounds in savings income tax-free. The measure means that the first £1,000 of savings income will be exempt from tax for basic rate taxpayers and the first £500 for higher rate taxpayers.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, said: “These measures should help rebuild a savings culture in the UK, which is critical for people’s financial wellbeing. Helping people build up their savings is the best way to make sure they really have freedom and choice in retirement.
“The Help to Buy ISA rightly recognises that housing is a very important part of people’s assets over their lifetime, which should form part of savings policy.”
Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA), said: “In our Budget submission last year, the BSA called for government support for savers and this year we asked the Chancellor to support home buyers.
“We are therefore delighted with the intent demonstrated by the Help to Buy ISA. A new £1,000 Personal Savings Allowance for basic rate taxpayers shows that the Chancellor has come round to our way of thinking.”