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What the election means for your money

The election pledges have been set out and the battle commences to cross the finish line with the most votes. Of the many policies advocated, those concerning personal finances strike a cord with many voters as people want to support a party that will improve their quality of life.

This may be why centre stage in the General Election battle has been taken by family finances. David Cameron for example pledged not to increase the three main taxes paid by households in a speech in the West Midlands last week. He said he would not raise the rates of income tax, VAT or national insurance until May 2020. The Conservatives have also promised they plan to increase the 40% higher rate threshold to £50,000 (from its current level of £42,386 a year) within that timeframe.

Labour leader Ed Miliband has pledged not to raise VAT, national insurance or the main and higher rates of income tax, while returning the top rate from 45p to 50p for those earning over £150,000 .

Miliband accused the Conservatives of planning a £3.8 billion raid on tax credits for the lower-paid to fund a freeze across the three taxes. While he promised that Labour would guarantee that tax credits rise at least in line with inflation every year of the next Parliament.

However, it seems that lower earners are in a position to benefit regardless of who wins the election. The Conservatives pledged to raise to £12,500 the level at which workers start paying income tax, while Labour promised to reintroduce a 10 per cent starting rate for income tax.

Labour also promised to ditch the marriage tax allowance, introduced by the Conservatives just this month. The allowance permits a spouse or civil partner who does not pay income tax to transfer up to £1,060 of their personal tax-free allowance to their partner.

Liberal Democrat leader Nick Clegg wants to raise the tax-free personal allowance to £11,000 next April – and, like the Conservatives, to £12,500 within the next five years.

Clegg also wants to hike capital gains tax by increasing the rate (currently 18 per cent or 28 per cent depending upon the level of annual income) and reducing the annual tax-free allowance (currently £11,100).

On inheritance tax, the Conservative party has promised a new £175,000 per person transferable allowance for married couples and civil partners when their main residence is passed down to children on death. When this is coupled with the £325,000 nil-rate allowance each person has, it means property worth up to £1 million will be able to be passed down to children free of inheritance tax.

The Conservative party is less accommodating to high earning pension savers. It will restrict tax relief on pension contributions for those earning more than £150,000, who currently get relief at 45%. They plan to do this tapering the annual pension contribution allowance from the present £40,000 to £10,000 once income reaches £210,000. This equates to 50p of allowance lost for every additional £1 of income in a range between £150,000 and £210,000.

The Labour party also plans to restrict tax relief for this same group of high earners by restricting the tax relief on pension contributions, reducing it from 45% to 20%.

However, in practice these policies are likely to impact a small group of savers, as according to the Institute of Fiscal Studies there are 300,000 people falling into this income bracket.

The Liberal Democrats have their eye on workplace pensions, and continue the roll-out of auto-enrolment with nine million people guaranteed these schemes. They also promised to cut pension charges for workers being auto-enrolled into these plans to encourage them to save more.

Increasing the state pension is a promise made by the three main parties. They all promise to raise it annually using the ‘triple lock’ formula – the higher of consumer prices inflation, average earnings or 2.5 per cent.

As the election gets closer, we can expect all parties to make statements, some of them radical, about how voting for them to run the government would be beneficial to our finances. We will have to decide which policies we prefer and cast our vote accordingly.

One thing for certain is that regardless of which party, or parties, end up in power, the responsibility for managing their finances rests firmly with each member of the electorate. The parties may offer incentives to voters in return for their support, but voters have two main choices: to capitalise on freedoms to spend more or invest money wisely.

Lowes Financial Management takes a holistic approach to financial planning, taking account of a client’s goals and aspirations and their unique personal circumstances and offer advice according to these. We don’t make political promises or predictions, but we always ensure that personal finances are cared for personally.

This was posted in Bdaily's Members' News section by Lowes Financial Management .