The new tax free savings allowance

jimmyboy420

Hi,

I'm considering getting a regular saver account with First Direct. 6% before tax, all paid on maturity at the end of the year.

If I start this in the tax year 2015/16, this interest will fall due in 2016/17 tax year (one year after opening).

Will this then be tax free (assuming no rule changes in the mean time)?

Thanks!

James

Archi_Bald

Assuming the budget gets implemented, yes.

jimmyboy420

Thanks. So, to confirm, it is simply when the interest is paid and not when it was "earned" that is important?

I guess it would be an administrative nightmare to do it any other way.

le_loup

For personal savers the tax point is when interest is paid.

jimmyboy420

Thanks for the confirmation. This seems like a "loop hole" that no one has pointed out yet. These regular saver accounts receive very good rates of interest.

joe134

jimmyboy420 wrote: »

Thanks for the confirmation. This seems like a "loop hole" that no one has pointed out yet. These regular saver accounts receive very good rates of interest.

it applies to all accounts.no loophole.It can be a catch, if you take a 3 year bond , and get interest paid at fruition, then you are taxed on all in that year over your limit.I've been caught out with it.Annual tax is better, if keeping savings borderline, otherwise, you pay no tax for 2 years, then pay 3 years tax on 3rd year, when it throws you over the allowances limit.Not exactly a loophole.:-)

jimmyboy420

joe134 wrote: »

it applies to all accounts.no loophole.

I didn't say anything different - I know it applies to all accounts. I used the quotation marks for a reason.

The point is, the regular savers pay interest at the end of the term, and they pay a high rate of interest.

So you can start earning a high rate of interest almost immediately. With many/most normal savings accounts, the interest gets added monthly, so you'll be taxed on it over the course of the next year, and the rate isn't as high...

joe134

jimmyboy420 wrote: »

I didn't say anything different - I know it applies to all accounts. I used the quotation marks for a reason.

The point is, the regular savers pay interest at the end of the term, and they pay a high rate of interest.

So you can start earning a high rate of interest almost immediately. With many/most normal savings accounts, the interest gets added monthly, so you'll be taxed on it over the course of the next year, and the rate isn't as high...

err, no .if it's paid monthly(, and most don't,) you pay tax at the rate at the time 20 %.apr.aer.It's not exactly a high rate, if averages out over the year, 3% +from 6%, hardly mega - rate;
I have one though.

bowlhead99

There is always a tax planning point around when a product pays its interest.

You might prefer a product that pays monthly if you need the money monthly OR if you are a lower rate taxpayer in the current year rather than next - e.g. you expect a pay rise or you expect to max out your allowances in a later year but not in an earlier year.

Some people would benefit from having the product pay out in the following tax year if there is something new coming in that affects thfem in the second year but not the first - like a wider 0% tax band or a £200 tax saving on the first slice of bank interest, or just simply that they drop from a 45% taxpayer to being a 40% taxpayer or from a 40% to 20% or 20% to nil.

To confuse the issue some products pay interest annually rather than monthly but pay it out on a fixed annual date (e.g. 31 December) rather than the anniversary of taking the product out. So, you need to look carefully at the terms and options available.

Since the beginning of time there has always been opportunities around when it's more effective for you personally to take a bit of income, but most would just consider them tax planning points and not describe them as 'loop holes'. If you have a choice of when to take income and it is to your advantage to defer, and you can do without it in the short term, then you should defer.

Deferment of income to a time that suits you better is one of the principles of pensions for example, and they're not really described as 'loop holes' at a basic level (even though there are plenty of little fiddly planning points once you get into them)

jimmyboy420

joe134 wrote: »

err, no .if it's paid monthly(, and most don't,) you pay tax at the rate at the time 20 %.apr.aer.

You seem to be agreeing with me. Interest paid in theg 2015/16 tax year will beg taxed.

joe134 wrote: »

It's not exactly a high rate, if averages out over the year, 3% +from 6%, hardly mega - rate;
I have one though.

It's 6%. The interest rate is 6%. Yes, some money is invested for less than one year. But that doesn't stop the interest rate being 6%. If you know of any higher rates available on cash, please let me know.

jimmyboy420

bowlhead99 wrote: »

Since the beginning of time there has always been opportunities around when it's more effective for you personally to take a bit of income, but most would just consider them tax planning points and not describe them as 'loop holes'. If you have a choice of when to take income and it is to your advantage to defer, and you can do without it in the short term, then you should defer.

Deferment of income to a time that suits you better is one of the principles of pensions for example, and they're not really described as 'loop holes' at a basic level (even though there are plenty of little fiddly planning points once you get into them)

Thanks!

There are many things that are described as loop holes but aren't throughout tax legislation, and it was simply the first suitable word that came to mind. As mentioned previously, I put it in quotation marks for a reason

I would note that it is implicit in much/all of the media reporting around this tax change that it would apply from the 2016/17 tax year, and therefore cannot be of benefit for savings in the 2015/16 tax year. But clearly, as discussed, it can. (the reason for my question in the first place). In that respect, it is not something that has been readily brought to the attention of the general public [in the media] - and therefore I would consider it to be a little known benefit that appears in some ways to contradict the spirit of the legislation. This seems to be, broadly speaking, a "loop hole" to me [note the use of quotation marks once again].