Our columnist Mr Money Bags, who has decades of experience in Finance, an MBA, an advanced diploma in Financial Planning and not to mention his super business skills, is here to give you, our loves readers some valuable tips and advice on money business matters. He is forthright and can sometimes be stern when it comes to your cash, but when it comes to finance he really is the expert. Read on for your business and finance advice…
I am an advocate of two major financial changes the government made last year: liberation for hard working pensions, and nothing to pay on the first £1000 of your savings interest. The new rules mean that approximately 17 million of us in the UK will no longer pay any interest on our savings!
This particular allowance is quite fairly structured – the tax man has given basic rate tax payers an allowance of £1,000, higher rate £500 and those fortunate to have an income above £150,000 no allowance at all.
A large number of individuals whom I have recently met and made aware of the new changes had little or no clue of the new changes coming into force from the start of the new tax year.
The £1,000 interest allowance is on top of the interest people will gain on ISA’s, which is why I would recommend that you continue savings funds within an ISA wrapper, as ISA’s usually give a higher rate of interest than normal taxable accounts. In my view now that taxable accounts will now pay all interest gross and for the majority of people tax free. ISA providers may therefore have to increase rates to remain competitive, and if you have used ISA’s over the last few years, then large amount of your savings would be free of tax.
So, what do you need to know about the changes? Well first of all you do not need to do anything at all. It is the problem of your bank/building society to get their computer systems to pay all interest gross. There are no longer R85 forms to fill in, which will be a god send for many people.
So how much difference will the tax free element make to you? As rates are very low at the moment, it is sad to say that the interest received will not be significant unless you have a decent amount of savings. If you have £50,000 of savings and you get 1% interest, then you will receive £500 gross if your interest is received after 6 April 2016; therefore you will be £100 better off.
I guess when the Bank of England increase rates (and touch wood, also raise savings interest rates!) the new £1,000 of interest will be of greater importance to a greater number of savers.
If you have savings that will generate over £1,000 of interest after 6 April 2016, then as a basic rate tax payer you will be required to fill out a self assessment form. Although HMRC says they will change tax codes for people who exceed the amount of interest payable, I think this is a tall ask, especially considering that we are less than a month away before the allowance begins.
Although the majority of people will not greatly benefit from this change to gross tax on savings interest, it will greatly help some savers and many retired people, who rely on their savings to top up their retirement income.