How to give your household budget a boost: Our tips to improve your finances...with a little help from the Chancellor
Let's be honest, the Budget was a little bit of a personal finance damp squib with nothing to shock or marvel at. Safety first was the order of the day for Chancellor of the Exchequer Philip Hammond.
But Budget week is always a good prompt to take a look at your finances.
Here, The Mail on Sunday’s award-winning personal finance team explains how you can transform your own household budget – with some assistance from the Chancellor.
A new leaf: Charlotte Williams has saved a fortune in fuel costs by going electric
MY ELECTRIC CAR'S NIFTY...THEY HAVE TO BE THE FUTURE?
Charlotte Williams welcomes the Government’s pledge to boost the number of electric car charge sites in Britain. There are currently about 5,000 with 14,000 plug-in points.
The 31-year-old part-time model, from Bedford, has an electric Nissan Leaf company car and is an administrator for car power point provider Chargemaster.
She says: ‘Anything that encourages more electric cars on the road has to be good news. The idea these vehicles are akin to milk floats is seriously outdated. Nowadays electric cars are nifty.’
Charlotte adds: ‘I used to spend more than ￡50 a week on petrol for a 40-mile round commute from Bedford to Luton. Now I spend under ￡5 a week. Electric has to be the future.’ She also welcomes a ￡40 million Government grant that will look into how to increase battery charge speeds.
Home sockets can take six hours to provide enough electric juice for a vehicle to run 100 miles. Rapid-charge points offered in towns take about an hour to get electric cars fully charged. Despite the Budget boost, they are still expensive to buy – even after a Government subsidy for buyers worth up to ￡4,500. A new Nissan Leaf can cost ￡22,000 while the small two-seater battery powered Renault Twizy is ￡8,000.
BUYING A HOME
WHAT WAS ANNOUNCED?
A pledge was made to build 300,000 new homes each year and stamp duty was scrapped for many first-time buyers.
Stamp duty will now no longer be charged on property purchases made by first-time buyers up to ￡300,000 in value.
Also, those spending up to ￡500,000 on a first-time home – including most buyers in London – will pay no stamp duty on the first ￡300,000.
Currently, the average value of a home acquired by a first-time buyer is just over ￡207,500. Pre-Budget, a buyer would have paid some ￡1,650 in stamp duty for such a house. Now, there will be no stamp duty bill to pay.
For London dwellers, where the average first-time buyer price is ￡410,000, the stamp duty bill will drop from ￡10,500 to ￡5,500.
Critics say the Chancellor’s key Budget reform could push house prices up as demand increases for first-time buyer properties. It also does nothing to help existing homeowners move and free up housing stock for buyers at the bottom of the property ladder.
YOUR ACTION PLAN
Anyone hoping to buy a first home from now on will be boosted by the reduction in stamp duty costs.
But there are other ways they can keep purchase costs down to a minimum and smooth the buying process. First, they should check their credit rating – because mortgage lenders certainly will do so before offering you a home loan. The better your rating, the greater the chance you have of having a mortgage application accepted.
Use any or all of the three credit reference agencies – Experian, Equifax or Callcredit – to get an idea of your credit rating.
Do this ideally six months in advance, giving yourself enough time to fix issues that might count against you.
For example, unused credit cards left on your credit file could be misinterpreted as suggesting you have a predilection for debt.
Saving a healthy home deposit is essential. The bigger the deposit, the cheaper the loan you will get. Saving can be made easier by using the Help to Buy scheme.
This allows you to either buy a share of a property (between 25 and 75 per cent) while paying rent on the remainder – or take a Government loan to bolster your down-payment on a newly built home. While these squash the upfront cost of buying a home, a Help to Buy Isa can simultaneously boost your deposit savings.
Put away ￡200 a month and the Government adds a ￡50 top-up, up to a maximum ￡3,000 a year. Joint buyers can each save into a Help to Buy Isa. Find more at helptobuy.gov.uk. Alternatively a Lifetime Isa can be used to help build a first home deposit.
Customers must be over 18 and under 40 and can save up to ￡4,000 a year until age 50. The Government adds a 25 per cent bonus up to ￡1,000 a year. There is a choice of investment or cash-based Lisa although only Skipton Building Society currently offers a cash Lisa.
Buyers with small deposits can get on the housing ladder if their parents are happy to act as ‘guarantors’. Lenders Barclays, The Family Building Society, Nationwide Building Society and Aldermore are among those which lend to first-time buyers who have relatives willing to step in for them if they have problems meeting the monthly mortgage costs.
Use a broker to search for a mortgage deal, such as London & Country or Charcol. Find out how much stamp duty you will have to pay by using the Government calculator at tax.service.gov.uk/calculate-stamp-duty-land-tax.
When it comes to conveyancing – the legal process of buying – find a solicitor via the Law Society. Visit solicitors.lawsociety.org.uk or call 020 7320 5650.
WE MISSED OUT ON THE STAMP DUTY GIVEAWAY
Adam Taylor has narrowly missed out on the stamp duty giveaway – with the property tax scrapped for first-time buyers on homes worth up to ￡300,000, or on the first ￡300,000 of a property worth up to ￡500,000.
Adam, 30, bought his first home with his girlfriend in Forest Hill, South East London, just three weeks ago. They would have been eligible for the perk if they had held off the exchange of contracts until last Wednesday.
He says: ‘We wish the stamp duty changes could be applied retrospectively. That said, we are happy with our new home and we have at least benefited from the bonuses we received from saving through a Help to Buy Isa.’
Adam could potentially miss out on new train discounts too. The latest Railcard for 26 to 30-year-olds will be introduced next spring – coinciding with Adam’s 31st birthday.?
Grin and bear it: Adam Taylor bought his first home just three weeks ago
WHAT WAS ANNOUNCED?
Unlike recent Budgets, there was little in Wednesday’s Budget to cheer, annoy or surprise long- term savers – apart from a nasty stealth tax on those who hold endowment plans or certain types of life policy.
Thankfully there was no change in the tax relief boost that savers get for putting money into a pension – something which recent governments have toyed with but not yet been brave enough to implement.
Nor was there any reduction in the maximum annual amount – ￡40,000 – people can contribute into a pension or an attack on the precious 25 per cent of a pension fund that savers can take as tax-free cash at retirement.
The only announcement that raised a cheer was an increase in the value of a pension fund before the taxman comes knocking for a slice of it.
The so-called lifetime allowance was increased from ￡1 million to ￡1,030,000 from April next year. It means only sums above this amount will be subject to extra tax when someone wants to start taking income from a pension.
There was no increase in the annual amount that can be saved into – or invested in – Individual Savings Accounts. This stays at ￡20,000. The Chancellor also backed off from using the Government’s savings arm, National Savings & Investments, to launch a new product that would put income in the hands of pensioners – a move that would have proved popular given the reticence of banks and building societies to pass on the recent increase in base rate.
For those who hold investments outside pensions and Isas, there was an increase in the capital gains investors can make from the sale of shares or funds before they are taxed on the profits. This will increase next April from ￡11,300 to ￡11,700.
Some experts thought the amount that can be invested in tax-friendly – but high-risk – Venture Capital Trusts and Enterprise Investment Schemes could be trimmed back. But this was not the case. Indeed, for certain types of Enterprise Investment Scheme, the annual allowance will double from next April to ￡2 million although it will be of limited appeal to most investors.
YOUR ACTION PLAN
Little change should be no excuse for continued lethargy. If you are not using the tax-friendly savings allowances currently available, try to do so because there is no guarantee they will be around for ever.
Certainly, if the Government is forced into an early General Election and a Labour administration is returned, a whole raft of savings incentives will be under threat. Higher rate relief on pension savings will be top of Shadow Chancellor John McDonnell’s hit-list while Isas could be shrunk back.
So, if you can put money into a pension do so, especially if you are self-employed and do not have a benevolent employer boosting your contributions.
The same goes for Isas – try to use as much of your annual ￡20,000 allowance as possible so as to build a tax-free fund for the future.
Although your contributions are made from taxed income, you can access an Isa when you want to irrespective of age – unlike a pension – and the proceeds are tax-free (again, unlike most of a pension).
Some venture capital trusts are currently available to invest in. For every ￡10,000 you invest, you get back ￡3,000 from the Government up to an annual maximum investment of ￡200,000. But you must hold your investment for five years. Dividends are free from tax. According to wealth manager Tilney, schemes open include those managed by Albion, Maven and Mobeus.
Although cash savings may be unattractive, remember that up to ￡1,000 of interest per year remains tax-free if you are a basic rate taxpayer – ￡500 for higher rate.
Will the Budget help you ...or anyone? Listen to the This is Money Podcast?
It was billed as a make or break Budget, so did the Chancellor pitch it right??
In this week’s podcast, Simon Lambert, Rachel Rickard Straus and Georgie Frost pick apart the Budget to try to find out who the winners and losers will be.
From an up to ￡5,000 tax saving on a first home, to railcards for the under-30s, zero mentions of the word saver, and whether Just Eat can really solve the productivity puzzle, they round-up what you need to know.
Plus, what exactly was Simon’s stamp duty idea that drew 296 reader comments – of which about 295 were calling him an idiot? Listen to the podcast to find out.
SAVING FOR CHILDREN
WHAT WAS ANNOUNCED?
Santa Claus largesse it is not, but a tweak to tax-free savings plans from next April means friends and family will be able to put a little more away for the younger generation out of the taxman’s reach.
As a result, the annual subscription limit for Junior Isas (Jisas) and Child Trust Funds will rise from ￡4,128 to ￡4,260 – ￡355 a month. Money can be squirrelled away in cash or shares, or a mixture of both.
YOUR ACTION PLAN
Do not delay saving for children. Through the magic of compounding – where interest is earned on interest each year – savings grow faster the earlier they are started. For children, with time on their side, equities or investment funds make best sense – in terms of what to hold inside a Jisa. This is because over the long term shares almost always outperform cash savings.
Remember that adult cash Isas (with an annual allowance of ￡20,000) are also available to children from the age of 16 – and eligible children can also hold a Jisa at the same time.
Do not delay: Through the magic of compound interest, savings grow faster the earlier they are started
For parents with an eye on an even longer term horizon, consider starting a pension for your children. You can put up to ￡3,600 a year into a personal pension and receive basic rate income tax relief – currently 20 per cent – on the contribution.
Your children may not be able to access the pension until at least age 55 but when the time comes they may well thank you for your foresight. Robert Gardner, pictured right, is co-founder of pensions consultancy Redington and a campaigner on financial education. He says: ‘Parents should open a pension for their child as soon as possible.
‘All they have to do is invest ￡5.50 a day – the equivalent of ￡7 with tax relief on top – from birth until their child’s tenth birthday, and then stop. Their child will then be on course to having a ￡1 million pension fund at retirement age 65.’
THE HOME FRONT
WHAT WAS ANNOUNCED?
Households struggling with a squeeze on their wallets due to higher food costs and low or no pay rises were offered some cheer last Wednesday.
The Chancellor wished them a ‘Merry Christmas’ – with a nudge to toast the festive season in their local public house by freezing the duties on most alcohol other than high strength booze.
Drivers who have suffered hefty increases on both fuel and motor insurance over the past year were awarded a little relief with a freeze on fuel duty. But buyers of new diesel motors from next April will see their road tax – Vehicle Excise Duty – leap in the first year if they pick a model that fails to meet stringent new emissions standards.
But many families will hopefully be able to free up a bit more cash from April for spending – or saving – thanks to an increase in certain tax allowances. The personal tax allowance – the amount you can earn before parting with any cash to the taxman – will rise from ￡11,500 to ￡11,850 in April. Plus the number of people falling out of the higher rate tax net will also increase when the threshold for those paying 40 per cent tax is lifted from ￡45,000 to ￡46,350.
YOUR ACTION PLAN
These tiny tweaks to tax breaks will not make you feel much better off. As a result, like the Chancellor, families will need more than ever to balance expenditure against outgoings and squeeze the most they can from their finances.
Quick fixes for beating the pinch include finding cheaper options for everyday bills such as energy, broadband and home and motor insurance. Do this by using comparison websites such as GoCompare or comparethemarket – or simply haggling with your current provider.
Consider buying anything from insurance to TV sets via a cashback website such as TopCashback or Quidco. These give you a cash payment for making purchases through their websites.
Also, take control of your household debts, especially the mortgage. If you are paying a standard variable rate – on average 4.7 per cent – switching to a keenly priced five-year fixed rate at 1.74 per cent could save a typical borrower with a ￡100,000 loan ￡1,864 a year – or ￡9,322 over the five years.
Similarly, check the interest you pay on credit cards and see if you can switch.
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