No more basic rate tax on savings interest?

Ballard

neilsedaka wrote: »

This may not be as good news as first thought. ISA interest rates are lower than normal savings interest rates because the banks put the difference in their own pockets rather than passing on the tax break to consumers. Is the same thing likely to happen with normal savings?

I'm not sure that this is true. GBP 12 Month LIBOR is around 1% so banks which pay, say, 1.5% per annum for your ISA could probably have borrowed at a lower rate in the market. Admittedly they might be lending it to their customers at 6% but that doesn't detract from the fact that there's cheaper money to be had.

chucknorris

If it is only the 20% tax band that is to be scapped, will current 40% tax payers carry on paying 40% or will that be cut to 20%?

macca1974

This would indeed be good news if it is true.

Although without wanting to be overly cynical, if interest rates do ever rise back up to historic levels, then the amount of tax being saved will become significant, so it wouldn't surprise me if the tax was re-implemented as and when rates increase!

Rollinghome

masonic wrote: »

It will also make cash ISAs look an even worse option for most if they can now get 3/4/5% in current accounts with no basic rate tax payable.

Would knock the cherry off the cake for tax-free NS&I products too - index linked and premium bonds.

At face value, would require a complete re-assessment by individuals of how/where they save and invest.

The Guardian has a different reading of it:
"Currently the coalition has plans to cut the 10p tax on income from savings for the lowest earners but that could be increased to include higher earners who pay a 20% rate. It’s understood there would be a cap on the amount that would be tax-free, for example the first £1,000. "

Cameron did of course promise to "abolish income tax on savings for everyone on the basic rate of tax" just before the last election, http://www.telegraph.co.uk/finance/personalfinance/pensions/10457090/Camerons-broken-promise-to-savers-costs-68bn.html , so some will want to remind him if it falls short.

masonic

chucknorris wrote: »

If it is only the 20% tax band that is to be scapped, will current 40% tax payers carry on paying 40% or will that be cut to 20%?

Looks like the rates will be unchanged and a tax-free threshold is to be applied as per Rollinghome's post.

I wonder how this will work. Many people will not earn more than £1000 in interest (or £500 if higher rate taxpayers), but the banks won't be able to keep track of when to start deducting tax, so I guess those that have large amounts of cash savings may have to declare the income to HMRC.

Edit: Nevermind, plenty of speculation elsewhere about how this might work.

Tonanti216

Can anyone recall who it was introduced tax at source on savings income and when it was introduced? Was it the 80's?

2010

IF this ever does come into force in April 16, expect the likes of Santander to cut their 123 current rate from 3% to 2.4%.

Broken_Biscuits

i do wonder if this was done because there was a big call for p2p to be available in an ISA.

now you can have about 15k in peer to peer without paying any tax. Similar to an ISA, however, when p2p goes teets up and everyone loses money... no one can point the finger at the government and say you lost me this money by making me think p2p was safe by endorsing it with a tax free wrapper.

Ed-1

2010 wrote: »

IF this ever does come into force in April 16, expect the likes of Santander to cut their 123 current rate from 3% to 2.4%.

Then it wouldn't be a 123 account - it'd be a 0.81.62.4 account! Hardly has the same ring to it...

JezR

Tonanti216 wrote: »

Can anyone recall who it was introduced tax at source on savings income and when it was introduced? Was it the 80's?

Until 6 April 1991 interest on savings accounts in banks and building socities was subject to a composite tax arrangement.

The amount added to accounts was not declarable on tax returns etc, but had already been subject to a non-reclaimable composite tax, which was a little less than the basic rate to take account of some people not being subject to tax. At a 25p basic rate the composite rate was 22p. After 1991 interest was paid net of basic rate tax, with the tax already paid being able to be reclaimed by non taxpayers.

This arrangement dated all the way back to 1891 for building societies, but only 1985 for banks. National Savings always paid gross until the above change.