£1,000 tax exemption is boost for long-suffering savers
From next year savers will be able to squirrel away up to £1,000 of interest before they pay any tax on it. A lower savings allowance of £500 will be available to higher-rate taxpayers.
Savers are currently charged at their marginal rate on savings income, so 20% taxpayers are charged 20% and higher rate taxpayers 40%. Under a move announced in the 2014 Budget the 10% savings tax for those on low incomes is being scrapped from next month.
But the new allowance, taking effect in April 2016, will allow savers to accrue up to £50,000 paying 2% interest a year without being charged tax on it.
Tanya Jackson, of Yorkshire Building Society, said: “This is great news for the 2.5m taxpayers in Scotland who will no longer pay tax on their first £500 or £1,000 in interest per year which supports and incentivises saving for the future. Millions of people are currently hit with a triple whammy of tax – on earnings, purchases and savings.”
David Lascelles, savings expert at Scottish Widows, said: “Any move that encourages more people to save for the long term is a positive step. Our research suggests that the increased flexibilities around savings introduced in the past year have had the desired effect, as the number of savers has risen to 74% from 63% in 2010.”
The personal savings allowance should also take some people out of the self-assessment system, noted Bruce Saunderson, head of investment advisory at PwC in Scotland.
“Very significant ISA allowance increases over this Parliament, which have resulted in many savers paying no income tax on their savings, are also welcome,” said Mr Saunderson. “The additional flexibility on Isa contributions is a further move to encourage saving through Isas and will be welcome for those who have to dip into Isa savings on those all too frequent rainy days.”
Mr Osborne also revealed that from later this year – the actual date has not been announced – savers would be able to take advantage of new flexibility that will allow them to take money out of Isas and keep their tax allowance, provided they put it back within a year.
Sylvia Waycot, editor at Moneyfacts.co.uk, said: “The ability to withdraw money from an Isa and repay it back at a later date lays to rest one of the key frustrations of Isa saving.”