Category Archives: Savings

New Tax Year, New Savings Allowances

So with the start of the new tax year (2016/17), there comes a new Personal Savings Allowance. This means that you are allowed to earn a certain amount in savings interest without paying any tax on it.

The limits that are applicable for 2016/17 are:

  • £1,000 in savings interest for those who are basic rate taxpayers
  • £500 in savings interest for those who are higher rate taxpayers

So, due to this change, banks and building societies will no longer be deducting tax from your savings at the source. Instead, if you are liable to pay any tax on your savings due to them exceeding this amount, you will need to either pay the tax to HMRC via your self assessment tax return, or else they will collect it via your tax code.

Not only has the Personal Savings Allowance been introduced, but also those earning under £16,000 (including savings) may also be entitled to make use of all of part of the starting rate of 0% on £5,000 worth of savings interest.

For example, if you earn £9,000 in taxable income, then you can use the £5,000 savings interest allowance and the £1,000 personal savings allowance so you could effectively get £15,000 in tax free income.

Using the above example if you earned £11,000 in taxable income then the maximum you could earn and not pay tax is £17,000.

This obviously assumes that you have conveniently apportioned earnings from taxable income and savings but it is unlikely to be the case for the majority of people.

So if you earn more than £11,000 (the personal allowance for 2016/17) then you will only get some of the £5,000 starting rate if your earnings are below £16,000 – say you earn £13,000 then you can have £3,000 of the starting rate savings allowance.

But whatever you earn – as long as you pay basic rate tax or no tax at all – then you are allowed the £1,000 personal savings allowance.

This graphic may help illustrate the effect for basic rate taxpayers of the personal Savings Allowance (up to £1,000 in interest from savings) and the starting rate savings allowance (up to £5,000 for lower earners)

Personal Savings Allowances
Personal Savings Allowances

In green are your taxable earnings, in orange is the available 0% rate on £5,000 worth of savings for lower earners and in blue is the new personal savings allowance of £1,000 for all lower rate taxpayers.

Any savings that fall out of these brackets are taxable.

For higher rate taxpayers you can have £500 in savings interest tax free and anything over that is taxable at your highest rate.

Personal Savings Allowance 2016/17

With effect from April 2016 the government have introduced a personal savings allowance that means that the majority of people will not have to pay tax on their interest from savings.

This is a new allowance which is in addition to the £5,000 allowance for low earners that was introduced in 2015.

For those whose earnings are in the 20% tax bracket, there is a £1,000 savings interest allowance – so you can earn £1,000 in interest on your savings without paying any tax on that interest.

In order to have savings where some part of the interest is taxable it is likely that you would need to have over £50,000 in savings – and this is worked out on a 2% interest rate which may not always be achieved.

For those whose earnings put them in the higher rate tax bracket (i.e. those who earn over £43,000 but below £150,000) there is a reduced personal savings allowance of £500.

Anyone in the additional rate tax bracket will not be entitled to any personal savings allowance.

Because these new rules mean that 95% of people will no longer pay tax on their savings, the tax will no longer be deducted at source from savings interest as it has been in previous years. Therefore there is no need to notify your bank or building society to ask them not to take tax off your interest.


ISA Allowance 2015

So with the new tax year coming into play tomorrow (6th April 2015) there is an increase in the ISA allowance. The previous allowance was set at £15,000 for the tax year 2014/15 (although it was only increased to this level on 1st July 2014) and this is being increased to £15,240 for the tax year 2015/16.

The allowance is for all ISAs, whether they be for cash or for shares so make sure you are not over paying into separate ISA accounts.

Also don’t forget that you can’t carry over any of your unused ISA allowance so unless you can find someone who is open today (Easter Sunday) to take any extra payment for 2014/15 then you are probably too late.

There are also new rules being introduced in the autumn where savers will be able to replace money that is withdrawn from an ISA, as long as this happens in the same year – more to come on this when further details are available.

Pensioners Could Earn £15,600 Tax Free

iStockbsheetFirstly I need to clarify the title of this article – this doesn’t only apply to pensioners but I wanted to highlight them as the most likely to benefit from this change in the tax rules that will start on 6 April 2015. Everyone can benefit, but it is more likely going to be pensioners that will have higher levels of savings income when compared to earned income (which includes pensions). Continue reading Pensioners Could Earn £15,600 Tax Free

2014/15 Isa Limit

There are some big changes to ISA limits in the 2014/15 tax year. In particular ISAs will change with effect from 1 July 2014 both in the amount you can save and the way you can save it.

So in general the ISA limit from 6 April 2014 is that you can pay £5,940 into a cash ISA and the total amount you can pay into both stocks and shares, and your cash ISA is £11,800.

Then on 1 July 2014 the name will change to a New Individual Savings Account (NISA) and the combined limit on cash and stocks and shares NISAs is £15,000 – this amount includes any money that you have paid into your old ISAs after 6 April 2014.

All old ISAs will be renamed NISAs from 1 July but cash and stocks and shares can be held within the same NISA.

Tax Relief on Pension Contributions

Happy RetirementThere have been many many changes to how pension schemes are run and the tax relief on not only pension schemes but also pension scheme contributions in the last decade and indeed further back. Pensions are such a confusing thing to so many people that they take one look at the rules and regulations for pensions and decide they are too complicated and put them to one side. Continue reading Tax Relief on Pension Contributions