March 16th, 2016

New Savings Implications

Are you ready for the new £1,000 personal savings allowance? And are you aware of the potential implications of having more than £70,000 in savings?

From April this year, every basic-rate taxpayer will be able to earn £1,000 in deposit and savings account interest without having to pay tax. Higher-rate tax payers will be able to earn £500 interest tax free.

So what does this mean?

This means that from April, Banks and Building Societies will no longer deduct basic rate tax at source before your interest is paid out. On the face of it this is great, as it means achieving a gross rate of interest on savings for basic and higher rate tax payers, but beware of the hidden catch!

Holding £70,000 in total savings, in an account paying 1.4%* gross would produce £980 interest per annum. Therefore holding any more than this, or having a savings account paying a higher rate of interest, could push you over the £1,000 threshold. This will mean having to pay tax on the excess of 20% for a basic rate tax-payer and 40% for a higher rate taxpayer.

Earning more than the £1,000 savings allowance will mean having to pay back tax on the excess yourself; through self-assessment or changes to your tax code.

Higher rate tax payers already have to declare the interest they receive on a self-assessment form. The hidden catch is that now these changes may introduce annual self-assessment returns as a necessity for many basic rate taxpayers with high levels of savings. Some may find this complex and time consuming.

How can it be avoided?

Individual Savings Accounts (ISA’s) will continue to be tax free savings vehicles, and for this reason they are exempt from the savings interest calculation altogether. Therefore it is even more essential than ever that you utilise your £15,240 annual ISA allowance; to move money into a tax free environment, where interest will not be assessed for tax purposes. Please contact Prosser Knowles to discuss your Stocks and Shares ISA options.

To discuss your Stocks and Shares ISA options with one of our advisers, please click here.

Written by: Laura Evans – Financial Planning Consultant, Prosser Knowles Associates Limited

Prosser Knowles Associates Limited is Authorised & Regulated by the Financial Conduct Authority. The value of your investment can go down as well as up and you may not get back the full amount invested. The Financial Conduct Authority does not regulate Taxation and Trusts. The information in this document does not constitute advice or a recommendation for any product and you should not make any decisions on the basis of it.  Your home may be repossessed if you do not keep up repayments on your mortgage.

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