32% tax on savings interest?

chewmylegoff

jimjames wrote: »

That may be true but I think the likelihood of existing ISAs being stripped of their tax free status is very very low especially as one of the aims of government is to increase long term savings. What is more likely to happen is that new ISAs are stopped at some point but the latest proposal is for child ISAs which would actually extend them further.

i don't personally think that ISAs will be scrapped all together. they might be replaced with something else (as ISAs themselves replaced their predecessors) but i really doubt there will be no ability to invest any amount tax free. they might freeze or reduce the annual allowance i suppose. just my personal view.

i'm all for tax and NI being merged, the separation is artificial and it is annoying when NI is put up as penalises workers. a trick of the last govt to avoid increasing tax for pensioners, because they vote, i expect.

even if savings tax was aligned with the proposed 32% basic rate, just stick the personal allowance up for anyone over 65. job done.

jimbow25

nilrem wrote: »

Fine until the treasury decides to remove the tax free status of ISA's!

There is no cast iron guarantee that they have to keep ISA's tax free AFAIAA.

There is no guarantee of anything lasting forever - any government can overturn what the previous government made law. Any ISA terms and conditions leaflet will say that the tax-free status is not guaranteed if the government decides it isn't.

Having said that there is no suggestion at the moment that ISAs are gonig to disappear so we'll see what happens when we get there.

And as someone said maybe this is the usual rumour mongering that makes the real announcement less bad (maybe this will happen, but with a huge number of caveats to protect savers, the elderly etc. In other words not much of a simplification...)

At least pension contributions would be more tax efficient as they don't normally get NI relief.

Arthurian

What a kick in the teeth. First, those early-retired folk who topped up their NI contributions are now mugs, because those who didn't will get a new universal pension just the same as everyone else. Now those who are living off their savings instead of benefits get to contribute even more.

StevieJ

jimbow25 wrote: »

At least pension contributions would be more tax efficient as they don't normally get NI relief.

I assume that is tongue in cheek

jem16

lisyloo wrote: »

I think if I was beyond ISA limits, my next port of call would be to invest and use the CGT allowance and then "bed and breakfast" each tax year to utilise the £10K CGT allowance.

I would imagine most already do that - I do certainly.

emphatiC_hanK

Or they might reduce the tax rate on savings, or even abolish it completely**?

After all, savers have been hit hard enough over recent times.

**They might revisit this idea from 2001:

http://news.bbc.co.uk/1/hi/uk_politics/1154041.stm

Mikeyorks

emphatiC_hanK wrote: »

Or they might reduce the tax rate on savings, or even abolish it completely**?

Dubious. As the gross take from just the TDSI witholding tax on interest was £4.365Bn in 08-09.

And whilst that is only marginally over 1% of the gross HMRC take from all sources .... it's still a sum I don't see being given up whilst the coalition are looking for savings. Which - after all - is at the root of merging IT and NI. As the administrative savings in manpower and IT are massive.

AirlieBird

Mikeyorks wrote: »

The tax on savings interest is 10% (up to £2440 above your personal allowance for savings interest only) and 20%. The 20% just now happens to coincide with the basic rate of tax but hasn't always. It was 20% whilst the basic tax rate was 22%.

Sorry Mike, the 20% savings rate was abolished in 2008 [clause 3, section 1 Finance Act 2008]. You are now charged basic and higher rate tax on your savings, unless you are in the 10% savings interest band.

Mikeyorks

AirlieBird wrote: »

Sorry Mike, the 20% savings rate was abolished in 2008 [clause 3, section 1 Finance Act 2008].

Apologies - you're quite right :

HMRCwebsite wrote:

For tax years 1996-97 to 2007-2008 income tax was deducted at the 20% savings rate. For 2008-09 onwards tax is deducted at the basic rate.

StephenM_2

DavidHayton wrote: »

So, if NI does get incorporated into income tax, would we be able to reclaim 32% tax on pension contributions,

I don't pay NO contributions on my pension contributions anyway, thanks to salary sacrifice. But its contracted out so I also pay less NI on the rest of my salary. I expect I'd lose that.