Extra 2% on savings ?

intalex

eskbanker said:

intalex said:

Did I hear her say something about unearned income like savings/dividends/property not attracting NI like earned income being inconsistent and unfair, and so is this 2% basically NI for unearned income?

Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary… 

…because no National Insurance is charged on property, dividend or savings income.  

It’s not fair that the tax system treats different types of income so differently… 

…and so I will increase the basic and higher rate of tax on property, savings and dividend income by 2ppts… 

…and the additional rate of tax on property and savings income by 2ppts. 

https://www.gov.uk/government/speeches/budget-2025-speech

Except that extra tax on savings interest won't earn qualifying years towards state pension even though it's in lieu of NI...

friolento

fuzzzzy said:

friolento said:

jak22 said:

It's not about those who don't pay tax on savings interest, its about those who do. From posts here there's many who do and put effort into maximising the interest which they live off, such as fixes to shield against upcoming interest rate drops. This is a 10% increase on tax paid - on savings on which tax has already been paid once.

We are not paying tax on something that has been taxed before. The tax is on the interest only, not on the capital (including the interest accried in prior tax years).

It's just that the savings for some people will grow a tad slower than they would have done without the increase.

Yeah but the capital decreases in real terms every year with inflation, the savings interest often only just retains the value of the capital.

That's an entirely different issue, one that has existed for years, albeit slightly less painful.

friolento

jak22 said:

friolento said:

jak22 said:

It's not about those who don't pay tax on savings interest, its about those who do. From posts here there's many who do and put effort into maximising the interest which they live off, such as fixes to shield against upcoming interest rate drops. This is a 10% increase on tax paid - on savings on which tax has already been paid once.

We are not paying tax on something that has been taxed before. The tax is on the interest only, not on the capital (including the interest accried in prior tax years).

It's just that the savings for some people will grow a tad slower than they would have done without the increase.

No need for bold text - youve not understood the point. Savings are earnings that have been taxed before. It's already unfair to the tax the interest - it's double tax - now its 10% more double tax.

I very well understand the point. Interest is only taxed once.

Notepad_Phil

friolento said:

jak22 said:

friolento said:

jak22 said:

It's not about those who don't pay tax on savings interest, its about those who do. From posts here there's many who do and put effort into maximising the interest which they live off, such as fixes to shield against upcoming interest rate drops. This is a 10% increase on tax paid - on savings on which tax has already been paid once.

We are not paying tax on something that has been taxed before. The tax is on the interest only, not on the capital (including the interest accried in prior tax years).

It's just that the savings for some people will grow a tad slower than they would have done without the increase.

No need for bold text - youve not understood the point. Savings are earnings that have been taxed before. It's already unfair to the tax the interest - it's double tax - now its 10% more double tax.

I very well understand the point. Interest is only taxed once.

Not if you use the interest to pay for a VATable item 

mebu60

Heytheremrblue said:

I’ll be making absolutely sure I stay under my PSA limits ! 

I'm sure the BoE will assist you by reducing the base rate along the way. 

mebu60

BooJewels said:

I will get my state pension in about 18 months, so once that happens, I may start to sneak into taxable territory - depending on how interest rates fare at that time.

More racing than sneaking as the SP will soon be above the threshold frozen now until 2031. 

Ceejay3000

A further reminder that we all have this tax year and next tax year to move taxable savings into ISA wrappers before we get to the point these new rates are applicable. So that's £20k this tax year, £20k the following year, and £12k that can be moved right at the beginning of 2027/28 into ISAs to avoid any impact from these new rates.

For most people this is going to be ample warning to minimise their exposure. In fact ever since interest rates went back up from the historically low levels  a few years back people have been moving their taxable savings back into ISAs.

Ceejay3000

subjecttocontract said:

But surely, year on year, savvy savers will be putting more of their savings away in tax free ISAs so that less of it will be subjected to any future surcharge ?

Plenty of people don't keep tabs on it though - including someone close to me who has just been shocked to receive a P800 tax bill for savings interest for the first time 

BooJewels

mebu60 said:

BooJewels said:

I will get my state pension in about 18 months, so once that happens, I may start to sneak into taxable territory - depending on how interest rates fare at that time.

More racing than sneaking as the SP will soon be above the threshold frozen now until 2031. 

I've done some calcs and using the projected SP figures I've seen for 2027 (i.e. just over the tax allowance) and a guestimate with interest rates and how much of my funds I'll still have, I think I'll pay the smidge of income tax the SP might attract (surely they'll adjust it a little to avoid that particular administrative nightmare) and between ISA allowances until then and the Starting rate and PSA, should actually pay very little.  If interest rates stay high enough that I might need to pay more, then I'll be happy enough with that, as I'll have earned more to live off in the meantime and needed to dip into the capital less.

friolento

BooJewels said:

mebu60 said:

BooJewels said:

I will get my state pension in about 18 months, so once that happens, I may start to sneak into taxable territory - depending on how interest rates fare at that time.

More racing than sneaking as the SP will soon be above the threshold frozen now until 2031. 

I've done some calcs and using the projected SP figures I've seen for 2027 (i.e. just over the tax allowance) and a guestimate with interest rates and how much of my funds I'll still have, I think I'll pay the smidge of income tax the SP might attract (surely they'll adjust it a little to avoid that particular administrative nightmare) and between ISA allowances until then and the Starting rate and PSA, should actually pay very little.  If interest rates stay high enough that I might need to pay more, then I'll be happy enough with that, as I'll have earned more to live off in the meantime and needed to dip into the capital less.

There is more to come on taxation for those on SP only