MSE News: Budget 2015: Martin's reaction to the savings changes

polyphonic99

The new £1000 Savings Allowance needs clarification.

Currently, the 10% Savings rate on the first £2880 of interest that is applied to those on low incomes is coming to an end on April 5, 2015. https://www.gov.uk/apply-tax-free-interest-on-savings/10-savings-rate

This is being replaced on April 6 2015 with a 0% Savings Rate on the first £5000 interest earned for anyone on an income of less than £15600 (Tax free allowance of £10,600 + £5000 interest earned)
https://www.gov.uk/apply-tax-free-interest-on-savings/changes

So how will the new Savings Allowance of £1000, which comes into effect on 6 April 2016 work in this case:
Will it be added on top so the first £6000 interest earned is tax free?
Will it not apply to people on low incomes who already benefit from the first £5000 above the personal Allowance tax free.

Can't seem to find the answer for this anywhere.

Ed-1

polyphonic99 wrote: »

The new £1000 Savings Allowance needs clarification.

Currently, the 10% Savings rate on the first £2880 of interest that is applied to those on low incomes is coming to an end on April 5, 2015. https://www.gov.uk/apply-tax-free-interest-on-savings/10-savings-rate

This is being replaced on April 6 2015 with a 0% Savings Rate on the first £5000 interest earned for anyone on an income of less than £15600 (Tax free allowance of £10,600 + £5000 interest earned)
https://www.gov.uk/apply-tax-free-interest-on-savings/changes

So how will the new Savings Allowance of £1000, which comes into effect on 6 April 2016 work in this case:
Will it be added on top so the first £6000 interest earned is tax free?
Will it not apply to people on low incomes who already benefit from the first £5000 above the personal Allowance tax free.

Can't seem to find the answer for this anywhere.

Those with taxable income up to the personal allowance + £5000 see no change from the £1000 savings allowance as they don't pay tax on savings anyway.

Those basic rate tax payers with taxable income above that but below the higher rate threshold save up to £200 in tax on savings interest as the first £1000 of any such interest is exempt from 20% tax.

Higher rate (40%) tax payers also save up to £200 tax on savings interest as the first £500 of any such interest is exempt from 40% tax.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

jamesd

Castle wrote: »

Once you have taken the £100,000 out, you are then limited to putting back only £15,240 for 2015/16. At this rate it would take more than 6 years to refill your £100,000 ISA.

See Ed-1's post with the link to the BBC story saying "HM Revenue & Customs confirmed that this new flexibility meant that someone could move out their entire Isa savings, accumulated over many years, and then reinstate them within the current tax year to resume their tax-free status".

Castle

jamesd wrote: »

See Ed-1's post with the link to the BBC story saying "HM Revenue & Customs confirmed that this new flexibility meant that someone could move out their entire Isa savings, accumulated over many years, and then reinstate them within the current tax year to resume their tax-free status".

I hope you're right otherwise it could be an expensive mistake. I can just imagine people transferring money back into their ISA at 11.59.59 on 5th April and transferring it out again a few seconds later on 6th April each year.

I can see ISA providers putting in some withdrawal restrictions because there's no money in this for them, if you only leaving your money with them for effectively 1 day a year.

Archi_Bald

Castle wrote: »

I can just imagine people transferring money back into their ISA at 11.59.59 on 5th April and transferring it out again a few seconds later on 6th April each year.

Why would people want to do this?

Castle

Archi_Bald wrote: »

Why would people want to do this?

Better rate of Interest!

KDH_2

I can see the rates on instant access ISA's dropping to even lower levels with only fixed rate ISA's (with their interest withdrawal penalties) holding their interest rates at current levels

Archi_Bald

Castle wrote: »

Better rate of Interest!

You have completely lost me there. Can you work an example that shows how putting money into an ISA at 11.59.59 on 5th April and transferring it out again a few seconds later on 6th April each year gives you any benefit?

I fear you totally misunderstand how interest works and it would be good to clear this up.

Herbalus

Archi_Bald wrote: »

You have completely lost me there. Can you work an example that shows how putting money into an ISA at 11.59.59 on 5th April and transferring it out again a few seconds later on 6th April each year gives you any benefit?

I fear you totally misunderstand how interest works and it would be good to clear this up.

You're on different wavelengths.

I think Castle meant you can achieve better interest rates outside of ISAs but these transfers mean you keep ISA protection for when ISA rates do go higher than the historical anomaly that is 5% etc in current accounts.

Steve_xx

Archi_Bald wrote: »

You have completely lost me there. Can you work an example that shows how putting money into an ISA at 11.59.59 on 5th April and transferring it out again a few seconds later on 6th April each year gives you any benefit?

I fear you totally misunderstand how interest works and it would be good to clear this up.

That would be madness, since the amount transferred out on 5th April would lose its tax wrapper forever, and the amount put in on 6th April would inevitably become part of the current tax years ISA.