The March Budget 2016: How does the Budget affect your personal finances?
Probably the most important aspect is the alteration to the projected growth of the UK economy over the rest of this parliament. This was a sea-change in the anticipated numbers, a significant ‘downgrading’ of how well the economy is expected to perform over the next few years. This matters because it suggests a growing risk of recession, which, in turn, would imply problems for the government meeting its targets on deficit reduction.
In this respect we could expect higher taxes, companies struggling to grow and, possibly, issues within the bond markets. All of which could have profound impact on your finances.
The flipside of all this is that there is no obvious prospect of any significant change in inflation rates or interest rates; so we should expect mortgage rates to remain low and savers continuing to struggle to find decent returns on their risk free assets.
At this stage we should point out how stark the difference is in the predicted growth rates within this Budget compared to the predictions from the Autumn Statement, which was just last November. The ‘loss’ of predicted income to the government due to these forecast changes is a mere £54 Billion! This highlights just how quickly these things can swing.
This leads onto a fundamental point for any of you using a structured approach to your financial planning. It doesn’t take much – or long – for the backdrop to change. And surprises should be expected, in reality the biggest surprise would be if the economy or markets didn’t throw up shocks from time to time. You should be prepared for the unexpected!
So although the outlook appears to be one of economic difficulties, accompanied by low inflation and low interest rates, there is no reason to think that this is ‘locked in’, or a certainty. Far from it, sensible financial planning would involve making sure you are prepared for a completely different environment. How are your finances set if we suddenly saw rapid rises in inflation or interest rates?
Are you comfortable you are structured to cope with this type of scenario, the one which no-one can ‘see’ at the moment?
One of the most exciting developments was the announcement of a new lifetime ISA for the under 40s. This is – on the surface – a welcome addition to the options available to younger people planning for retirement or to buy a property. This could have a material effect on you if you are in the age group which will qualify to invest into this new type of ISA. The decision whether to use this product or a pension, or how to balance savings between the two, could be an interesting one. We are here to help you if this is a decision you will be facing.
It is worth pointing out that further details of this new ISA are still to be confirmed and we have to wait a year until its introduction.
Normal ISAs are being extended (again as of next year), again a welcome announcement.
Finally, amongst other changes the Capital Gains Tax rate is being reduced and corporation taxes lowered for smaller companies.
You will be aware that aside from this Budget there are several other changes on the way, previously announced, which will come into place in April of 2016, to start in the new tax year.
A combination of the altering big economic picture (which could be complicated further by the Referendum in June) and a swathe of legislative changes to taxes across the board suggest that anyone serious about their financial planning should, at the very least, be taking a major review of how all this knocks onto their individual planning. In all likelihood, there will be something within this shifting environment that will be of relevance to your current or future positions.
At Penguin Wealth we are on hand to help you, we specialise in Financial Planning and handling how best to deal with any or all of these matters. If you would like to organise a Discovery or Review meeting please let us know; you can contact us at firstname.lastname@example.org or by calling 02920 450143.