Todays Budget was precededby dire warnings of pension raids,tax crackdownsand fuel duty hikes that largely did not happen.The giveaways were relatively plentiful, the taxhikes relatively scarce. Taxpayers will be pleased witha turbo-charged hike in the basic rate personal allowance to 12,500 from next year, up from 10,600 today, and the higher-rate allowance from 42,385 today to 45,000 from next April.
Even juicier ISA
Wealthier investors will be celebrating Chancellor George Osbornes decision to hike the ISAallowance again, increasing it to 20,000 from April 2017, up from 15,240 today. This allows investorsto shieldeven moreof their dividend income and capital gainsfrom HM Revenue & Customs. The truth is that few of us can afford to save anywhere near that much each year, so this is a break for the truly wealthy. It will do nothing for lower earners, the ones who need most help in saving for their retirement.
Worryingly, it mayalso pave the way for the ultimate abolition of pensions. Pre-Budget talk focused on a rumoured pensions tax raid, but all the fuss scaredChancellor George Osborne away from further tinkering. He may return, having now laidthe groundworkfor a new hybrid ISA/pension, and launch an all-out pension tax raid.
Once in a lifetime
The under-40sshould also welcome the new Lifetime ISA, which will hand them a government bonus of 1for each 4they save. They can save 4,000 a year, giving them a maximum bonus of 1,000. The money must either be used to buy a first home or saved until age 60, for withdrawalin retirement. Youcan withdraw fundsbefore then, but will lose thegovernment bonus and all growth on it if you do. Youll also be hit with a 5% exit penalty, which is ironicfor a Government that has campaigned against pension exit charges.
The Lifetime ISA gives younger investors a clear incentive to invest for their future and they should grab it with both hands. If saving for the long-term they should ignorecash and stick to stocks and shares, as this is the only serious way to generate long-term wealth.
Eye on the prize
The Budget itself may have been good news for investors, but the pre-match speculation was a disaster. All thoserumours aboutabout axing pension tax breaks will have left many ordinary people even more confused about our overly complex pension system, and reluctant to commit their money. It also turned thisyears ISAseason intoa damp squib, as investors sat on their hands and waited to see what Osborne had up his sleeve. Now it is gameon again.
As a long-term investor you have to set aside all the media hype and political fuss. Extended tax-free allowances aside, the Budget is just a sideshow. Whenall the excitementhas died down investors shouldkeep doingwhat theyalways do: invest regular sumsinto stocks and shares, takeadvantage of market corrections when you can, grabany tax breaks that come your way, ignore short-term lossesand hold on for long-term winnings. If you do that you can survive whatever the Chancellor throws at us next.
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