Taking over 90% of taxpayers out of paying tax on interest from savings
One of the biggest Budget giveaways was the announcement of the introduction from April 2016 of a tax-free Personal Savings Allowance, which will take over 90% of taxpayers out of paying tax on interest from savings and allowing basic-rate taxpayers £1,000 tax-free a year, £500 for higher-rate tax payers and nothing for 45% tax payers.
At Budget 2014, the Chancellor had already announced that from April 2015, savers wouldn’t have to pay tax on interest if their taxable income is less than £15,600.
This latest announcement means from April 2016, savers won’t have to pay tax on savings interest if their taxable income is less than £16,800. To be eligible for the £1,000 tax-free Personal Savings Allowance, your taxable income needs to be less than £42,700 a year. To be eligible for the £500 tax-free Personal Savings Allowance, your taxable income needs to be between £42,701 and £150,000 a year.
From April 2016, banks and building societies will stop automatically taking 20% in income tax from the interest earned on your non-ISA savings.
Budget 2015 Action Point
The allowance does put the compliance onus on taxpayers. If you become a higher-rate taxpayer, it’s your responsibility to pay the additional tax due.
How much tax-free interest could you receive?
Example 1 Earn £20,000 income a year + £250 in interest from April 2016
You won’t have to pay tax on your interest, as it is within your£1,000 Personal Savings Allowance.
Example 2 Earn £20,000 income a year + £1,500 in interest
You won’t need to pay any tax on your interest up to £1,000, but you will still need to pay tax on the £500 interest you have earned over your Personal Savings Allowance.
Example 3 Earn £60,000 income a year + £250 in interest
You won’t have to pay tax on your interest, as it is within your £500 Personal Savings Allowance.
Example 4 Earn £60,000 income a year + £1,100 in interest
As a higher-rate tax payer, you won’t have to pay tax on your interest up to £500, but you will still need to pay tax on the £600 interest you have earned over your Personal Savings Allowance.
Are your financial plans still on track after Budget 2015?
There may have been a number of key announcements in Budget 2015 that will impact on your financial plans. If you would like to review your current situation to ensure that your plans are still on track, please call us or use the contact form by clicking here.
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Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. Although endeavours have been made to provide accurate and timely information, Goldmine Media cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.
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