Small change for savers – but better jingling in your pocket than the taxman’s!
We have all become familiar with cash ISAs and the tax free interest that they bring. At current low interest rates the tax benefit is unexciting, but it is there, well established and ISAs are a useful tax planning tool in particular for higher rate taxpayers .
From this April, all but the highest earners (over £150,000pa) are being offered a further boost, with a new allowance of £1,000pa of interest before tax is due for basic rate taxpayers and £500 for higher rate taxpayers. For example, £100,000 at 1%pa outside cash ISAs will ‘save’ £200, which is a nice day out on HMRC. To make it easier for us, interest will be paid without the deduction of tax, like cash ISAs do at the moment.
For a lot of people, ISAs will lose their appeal over and above any other account, and the best interest rates will be the main account search criteria.
There’s always a downside , and on this occasion it’s that those who receive over the new amount of £1,000/£500 will actively have pay tax on the excess. This means that some people, including those who are retired and haven’t had contact with HMRC for years, will suddenly be thrust back into the arena of changing tax codes, varying income, more frequent correspondence and for many, an increase in confusion and anxiety.
We will make sure that all our clients have their accounts set up in the most advantageous way to maximise returns and minimise tax, but if you have a query yourself, do get in touch.