Six important personal finance changes this week

08 December 2014

George Osborne gave first-time buyers and many home movers reason to cheer this week when he reformed one of the most un

George Osborne gave first-time buyers and many home movers reason to cheer this week when he reformed one of the most unpopular taxes of all: stamp duty.

Buyers will no longer face a huge jump in their tax bills once the property price exceeds certain key levels. Sellers will no longer be forced to cut their asking prices to a nearby stamp duty threshold.

The change is expected to get the housing market moving in areas where property is priced at about the national average of £260,000, where previously many home owners had been reluctant to sell if they felt forced to ask no more than the £250,000 threshold for 3pc stamp duty.

Many of the Chancellor’s other moves will also affect the finances of families up and down the country. Here we summarise the main points of his Autumn Statement.

House buyers

The Chancellor’s biggest surprise was to scrap the hated “slab” system of stamp duty paid by home buyers.

This meant that when a home was priced above one of the stamp duty thresholds, the higher rate of tax was payable on the entire purchase price, not just the portion above the threshold.

The system resulted in huge jumps in tax bills when prices crossed a threshold, putting great pressure on sellers to cut prices to that level.

One who suffered from this was David Messiter, who said he sold his previous property for £250,000, the point at which stamp duty rose from 1pc to 3pc under the old system. Had he charged £1 more than the threshold, the stamp duty bill faced by his buyer would have jumped from £2,500 to £7,500.

“Had the stamp duty bill not tripled at £250,000 I would have charged between £10,000 and £20,000 more,” he said.

“The old system was ridiculous.”

Under changes announced on Wednesday, which took effect that night, there is no stamp duty to pay on the first £125,000, then 2pc on the part of the price between £125,000 and £250,000, 5pc on the part between £250,000 and £925,000, 10pc between £925,000 and £1.5m, and 12pc on everything above.

If you have exchanged contracts on a property but not completed, the Chancellor is allowing you to choose which stamp duty regime to apply to the transaction. According to Mr Osborne, anyone buying a property that costs less than about £937,000 will be better off choosing the new system.

Rupert Labrum (pictured above), who lives with his wife and three daughters in Sevenoaks, Kent, said his home would probably attract a higher stamp duty bill when he came to sell, although other properties he owned would cost a future buyer less in stamp duty. “This new regime sounds like a tax on the South East to me,” he said. “But it will benefit buyers in areas where property is cheaper.”

Income tax payers

Workers and pensioners were given a small boost by the Chancellor, who raised the levels at which basic-rate and higher-rate tax start to be paid.

The personal allowance, the level below which no income tax is payable, will rise from the current £10,000 to £10,600 in April, £100 more than the previously announced £10,500.

On previous occasions when this threshold has been raised, the Chancellor has prevented 40pc taxpayers from benefiting by simultaneously cutting the higher-rate threshold.

But this time 40pc taxpayers will also feel the benefit as the higher-rate threshold, £41,865 this year, will be raised by 1.2pc in April. The changes will be worth £120 to a typical basic-rate taxpayer and £172 to a typical higher-rate taxpayer. A further 430,000 individuals will stop paying any income tax as a result of the increase in the personal allowance .

'Pensioner Bonds’

These bonds, to be issued next year by National Savings & Investments, the Government’s savings arm, are designed to pay much better rates than conventional savings products from banks and building societies. They were announced in the Budget in March and more details had been expected in the Autumn Statement.

In particular, it was hoped that the Chancellor would announce the interest rates that the bonds will pay. But he said this announcement would now come next Friday, December 12.

In March he said a one-year Pensioner Bond would pay around 2.8pc and a three-year bond around 4pc.

The new bonds will be available to anyone aged 65 or over. But supply will be limited, with up to £10bn of the bonds being made available. Pensioners will be allowed to save a maximum of £10,000 in each version of the bond, offering a total of £20,000.

Savings experts have predicted huge demand for the bonds, so they could sell out very quickly once they go on sale. This is expected early in the new year.

Isa savers

In an unexpected move, Mr Osborne said widows and widowers would now be able to inherit their spouses’ Isas tax-free. Previously Isas lost their tax-free status on death, so income would start to be taxable and any rise in value after the date of death would also become liable to capital gains tax. Inheritance tax was never a problem, as widows and widowers could always inherit from their spouses without IHT being payable.

But there was no mention of excluding assets in Isas from inheritance tax on the death of the surviving spouse.

Following the huge increase in the amount that can be saved in cash Isas to £15,000 announced in the Budget, the Isa allowance for 2014‑15 will rise slightly next year to £15,240. The rise is linked to inflation but Treasury guidelines state that the figure should be rounded to “a convenient” multiple of £120, for the benefit of those who save monthly and want a round number for their direct debit.

Cash savers

The Government has no direct influence on official interest rates, which are set independently by the Bank of England. However, government policies can and do affect the interest rates that are actually offered to savers by banks.

One significant example is the “Funding for Lending Scheme”, a source of cheap funds made available to banks on condition that it was lent on to mortgage borrowers and small businesses. While the mortgage side has ended, the Chancellor announced an extension of the small business element of the scheme.

Any official source of cheap funding for banks reduces their need for deposits from savers and therefore their incentive to offer attractive interest rates. The extension of Funding for Lending is therefore further bad news for ordinary savers, said Susan Hannums of, the rate monitoring service, who pointed out that there had been more than 1,000 cuts to savings rates since Funding for Lending was restricted to business loans.

Families who take holidays overseas

Air passenger duty will be abolished for children under 12 next year and then for under-16s the following year, trimming the cost of family holidays . The change will save £26 for a family of four flying return to Europe, or £142 to America.

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