Tax free savings

justwantedtosay

Just wondering whether anyone knows if there is any possibility of the Starting Rate for Savings or the Personal Savings Allowance being reduced or ended. I know we can't really predict what a chancellor might do, but are these allowances absolutely set in stone or could they go on the whim of hard up government? Has anyone heard of it ever being suggested that they should go? The freeze of the personal allowance has dragged me into paying income tax on my pension/annuity, but at present not on any savings income and I'm wondering whether it would be wise to go for a slightly higher savings rate in a regular account and risk it being taxed before it matures or play safe with an ISA. I'm thinking that rates have peaked and it's a good time to take a 5 year fix - though I've been wrong before! 

You'd like to believe that they wouldn't do away with these perks when people could have fixed their savings for 5 years based on the current rules, but I have no faith in the powers that be after what they're doing to the personal allowance.

eskbanker

justwantedtosay said:

Just wondering whether anyone knows if there is any possibility of the Starting Rate for Savings or the Personal Savings Allowance being reduced or ended. I know we can't really predict what a chancellor might do, but are these allowances absolutely set in stone or could they go on the whim of hard up government?

Anything can be changed by governments.

ColdIron

justwantedtosay said:

Just wondering whether anyone knows if there is any possibility of the Starting Rate for Savings or the Personal Savings Allowance being reduced or ended.

Yes

are these allowances absolutely set in stone

No

Currently many allowances etc have been frozen until 2028 but that can be changed at the stroke of a pen

wmb194

In the coming tax years the dividend and CGT allowances are being reduced so there's no reason to think that the savings allowance should ever be exempt. It's actually only a relatively recent thing anyway.

https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance

Albermarle

wmb194 said:

In the coming tax years the dividend and CGT allowances are being reduced so there's no reason to think that the savings allowance should ever be exempt. It's actually only a relatively recent thing anyway.

https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance

Except maybe that in political terms ' dividends and CGT' are seen as taxes on the well off , whilst savings taxes more affect the wider public, and any change would be better understood, so are less likely to be touched.

Band7

Albermarle said:

wmb194 said:

In the coming tax years the dividend and CGT allowances are being reduced so there's no reason to think that the savings allowance should ever be exempt. It's actually only a relatively recent thing anyway.

https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance

Except maybe that in political terms ' dividends and CGT' are seen as taxes on the well off , whilst savings taxes more affect the wider public, and any change would be better understood, so are less likely to be touched.

Yes, absolutely, which is why this week's budget reduced the pension taxes of the very well off and did nothing to help the masses with their pensions

wmb194

Albermarle said:

wmb194 said:

In the coming tax years the dividend and CGT allowances are being reduced so there's no reason to think that the savings allowance should ever be exempt. It's actually only a relatively recent thing anyway.

https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance

Except maybe that in political terms ' dividends and CGT' are seen as taxes on the well off , whilst savings taxes more affect the wider public, and any change would be better understood, so are less likely to be touched.

Sure but it would be easy to trot out the 'fact' that most people have less than £200* in savings and pitch it as only benefitting the better off. The other, actually more likely way to reduce it, would be to use fiscal drag to reduce its real value over time.

*Or whatever the commonly quoted figure is

Dazed_and_C0nfused

justwantedtosay said:

Just wondering whether anyone knows if there is any possibility of the Starting Rate for Savings or the Personal Savings Allowance being reduced or ended. I know we can't really predict what a chancellor might do, but are these allowances absolutely set in stone or could they go on the whim of hard up government? Has anyone heard of it ever being suggested that they should go? The freeze of the personal allowance has dragged me into paying income tax on my pension/annuity, but at present not on any savings income and I'm wondering whether it would be wise to go for a slightly higher savings rate in a regular account and risk it being taxed before it matures or play safe with an ISA. I'm thinking that rates have peaked and it's a good time to take a 5 year fix - though I've been wrong before! 

You'd like to believe that they wouldn't do away with these perks when people could have fixed their savings for 5 years based on the current rules, but I have no faith in the powers that be after what they're doing to the personal allowance.

You could argue they are gradually being eroded as neither the savings starter rate band or savings nil rate band has been increased to match inflation for many years.

The savings starter rate has been £5,000 taxed at 0% for 9 tax years come 6 April.

And the savings nil rate band will have been the same for 8 consecutive tax years.

jimjames

justwantedtosay said:

Just wondering whether anyone knows if there is any possibility of the Starting Rate for Savings or the Personal Savings Allowance being reduced or ended. 

Definitely a good chance. You can already put £20k per year into accounts that make it tax free so no reason why the allowance wouldn't be dropped

justwantedtosay

Thanks all. I only recently discovered that interest on a fixed rate account is all taxed at the end of the term and not annually, which means it doesn't take a huge amount of savings to use up all the allowances in that year now rates are a little higher. I was never close enough to paying tax to worry before. The cuts in dividend allowance and the personal allowance make me think nothing is safe anymore. Perhaps I should play it safe.

BTW, I did the maths on a 5 year fix at 4.4%, taking the interest annually to help avoid tax and putting it into a 3% easy access account, against a 4.2% ISA and leaving the interest in that account - the extra 0.2% made less difference than I thought it would with more than half the gain being given up. Overall return worked out at 4.288% - if I got my sums right, which isn't a given!

And another thing... It seems that if I open a fixed rate ISA with £1,000 it means I've blown the rest of my allowance for the year [assuming I don't want to throw my money away on shares - anybody else had a nightmare week there!?] Doesn't that seem crazy to you? Perhaps they should make the rule that you can only pay into one cash ISA provider in any tax year rather than one cash ISA. Who has exactly £20k lying around looking for a home?

justwantedtosay

jimjames said:
You can already put £20k per year into accounts that make it tax free so no reason why the allowance wouldn't be dropped

Except it would be harsh on anyone who tied their money up in a 5 year non-ISA fix to have the tax rules changed under their feet.