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Money Times - March 22, 2016

Posted by Jill Kerby on March 22 2016 @ 09:00

 

GEORGE OSBORNE IS BEING VERY GOOD TO OUR YOUNG PEOPLE

It will be another six months before the next Minister for Finance delivers a Budget here, but he or she might want to consider at least a few of the measures that George Osborne included in his last week.

Let’s start with their new version of our old SSIA scheme which operated here between 2001 and 2006 and allowed for five years of tax free savings of up to €200 a month that the government then topped up by another 25% or a maximum of €50 a month.

The Irish scheme was introduced to try and encourage more saving and investing in what was already becoming an overheated economy. Unfortunately, as the scheme came to an end the boom was peaking and this great flood of money only poured more fuel on the mostly property-generated fire.

Osborne has decided that this scheme is needed to help mainly first time buyers finance their first homes. Like here (and especially in the south east of England) there is a shortage of homes and prices are extremely high.

In conjunction with the already available ‘Help-to-Buy’ ISA savings scheme for any first time buyers (whereby first time buyers get a £50 bonus for every £200 per month saved up to a maximum of £3,000 on £12,000 worth of savings.)

this new ‘Lifetime ISA”  or Lisa for short goes much further.

Aimed at savers between 18 and 40 it allows for up to £4,000 a year to be saved or invested with the account holder getting a 25% top-up from the Government until they reach 50. This fund can be used to buy a home worth up to a maximum £450,000, or, if they choose, to be taken out, tax free at age 60 to spend as they wish, but ideally to be used as a retirement fund. Early withdrawals for purposes other than a house purchase will result in a claw-back of the 25% plus any interest and a 5% tax. It is estimated that this new scheme will be worth at least £10,000 more than just saving with ‘Help-to-Buy’.

Not everyone is enamoured by the new scheme, which critics say is nothing more than a targeted tax refund to those who have sufficient income to divert £4,000 into longer-term savings. It doesn’t offer anything to young people paying increasingly higher rents (just like here) who have nothing left to save at the end of the month. 

But the UK budget did introduce other positive measures and tax cuts that our incoming Minister should consider, including raising the overall ISA (Individual Savings Accounts) limit from

£15,240 to £20,000 a year from 6 April 2017. 

(We still do not have any kind of tax-free savings other than the monopoly state savings products sold by An Post which have no investment alternative.)

Personal income tax allowances have also been increased in the UK from £11,000 (€14,700) in 2016/17 to £11,500 from 6 April 2017.  In Ireland, our annual personal tax allowance is a measly €1,650 and just €550 for the self-employed.

Meanwhile, British taxpayers will only start to pay 40% income tax on income over £43,300 (€54,500) in 2016-17 and from £45,000 from April 2017. (It was £42,385).  Their highest, 45% tax rate, only kicks in on income over £150,000 (€189,913). Our highest tax rate of 40% applies to all euro income over €33,800 and USC is now 8% on all earnings over €70,000 to €100,000.

The other giveaway that Osborne produced – and should also be considered by our incoming Finance Minister is the reduction in capital gains tax from 28% to 20% for higher earners and from 18% to 10% at the basic rate. After 2000 when Irish CGT rates were halved from 40% to 20% the State received a bumper tax crop and investment activity increased.  But with our rates currently at 33% and DIRT on savings and investments at 40% there is very little incentive to save and invest.

The UK annual CGT exemption has remained at £11,100, or nearly €15,000. Here, the annual exemption hasn’t changed for at least two decades and remains at a paltry €1,270.

All of these UK budget changes are significant because this Irish governments since the 2008 crash have bemoaned the huge loss of our young people. They have left, not just because the economy collapsed but because the taxes that were subsequently imposed and remain to this day mean that even if they wanted to return – from the UK, for example – with the current tax burden not only would they struggle to pay rent or buy their own home, but it could prove impossible to make those payments and childcare costs if they started a family.

Britain is being very good to our bright, highly employable young people right now. They’d be crazy to come back until they see how the next Irish Budget pans out.

 

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

 

 

 

 

 

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